Financial analysis increasingly extends beyond reviewing reported balances and calculating conventional financial ratios.
In areas such as financial due diligence, M&A, valuation and financial modelling, the analytical challenge is to determine what the underlying data reveals about the economic performance, cash-generating capacity and risk profile of a business.
A clear example is Quality of Earnings (QoE) analysis. Reported EBITDA is rarely considered in isolation. It may require normalisation for non-recurring transactions, discontinued operations, non-operating items, related-party arrangements, exceptional expenditure and other factors that are not representative of sustainable operations. The objective is to establish a maintainable earnings base and assess the extent to which historical profitability is recurring, predictable and sustainable. QoE therefore goes beyond reported earnings to consider the underlying quality of those earnings and their ability to support future
