Fifteen questions about how well the profit figure you report would hold up under scrutiny.
An outside buyer, lender or board does not just ask for the number. They ask what sits behind it: which costs you added back, whether unusual events changed the year, and whether revenue and costs were recorded consistently. This assessment walks through five areas of your reported profit. You will see a directional score and a practical read on which records need work. It is not an audit, a quality of earnings review or a valuation.
You do not need to speak transaction finance. The answer options explain the distinctions. Your responses are handled under our Privacy Policy. If the read suggests a useful conversation, someone from TEOL may follow up. If you choose not to engage, you may receive occasional insights from TEOL. Every message includes a one-click unsubscribe.
About ten minutes. You can go back at any point.
The EBITDA Quality Guide
What a defensible profit figure requires, why a buyer tests it and how it differs from cash you can use.
EBITDA is earnings before interest, tax, depreciation and amortisation. The figure is a useful starting point, but it does not tell a buyer whether your adjustments are supported or whether recent trading is repeatable. The EBITDA Quality Assessment asks fifteen questions across five areas to help you identify what needs evidence.
Your own pay, one-off expenses and other add-backs can change the profit figure put in front of a buyer. For each adjustment, keep a written explanation and the underlying records. An accounting firm carrying out a quality of earnings review may accept, revise or reject those adjustments after inspecting the source.
This assessment does not calculate adjusted EBITDA, certify an add-back or substitute for a commissioned quality of earnings review. If you need an arithmetic range based on a reported EBITDA figure, the QofE Pre-Read is the separate directional tool for that question.
A buyer applying a multiple to profit needs to know which figure can be defended. They test the accounts, the timing of revenue and costs, and whether claimed one-off items would recur under new ownership. An undocumented adjustment gives the buyer a reason to rebuild your number on their assumptions.
For example, if a price is based on six times a $5 million profit figure and diligence supports only $4.2 million, that same illustrative multiple would imply $30 million rather than $25.2 million of enterprise value. These figures demonstrate arithmetic, not a forecast, typical multiple or estimate for your business. Debt, cash, working capital and transaction costs can further change what a seller actually receives.
Preparing the source records and a bridge from reported to adjusted profit before a sale gives you a chance to explain each change. Read more about the Financial Truth Ladder or test your broader position with the Sale Readiness Index.
EBITDA excludes interest, tax, depreciation and amortisation. It does not tell you how much cash was spent replacing equipment, how long customers took to pay or how much cash went into stock. Your business can report positive EBITDA while having little cash available for loan payments or growth.
Compare profit with actual cash receipts, payments, capital spending and changes in working capital. A lender will also ask whether the resulting cash covers loan payments under pressure. The Working Capital Peg Calculator examines monthly balances; the Capital Structure Stress Test examines debt service and covenant headroom using figures you provide.
Before you begin
How defensible your reported profit figure is when someone examines it. Two businesses reporting the same profit can have very different quality depending on how adjustments are documented, how consistently accounting policies are applied, and whether anything unusual is sitting inside the number.
Costs taken back out of profit because they are personal, one-off, or would not continue under new ownership. Buyers routinely accept owner compensation adjusted to a market rate. They challenge anything that looks recurring, anything undocumented, and anything discovered rather than disclosed.
There is no fixed threshold, but the proportion matters. As add-backs become a larger share of reported profit, scrutiny rises sharply and the burden of evidence shifts to you. The practical answer is that every add-back should have written reasoning, and the more there are, the more that matters.
What the business would earn over a full year at its current level of trading, rather than what it earned over the last twelve months. It matters when something material changed recently: a major customer won or lost, a pricing change, a structural cost change.
Because they are paying a multiple of it, so every adjustment is worth several times its own value to them. A buyer's accountant rebuilds the figure from source records. If your position is documented, they tend to confirm it. If it rests on assertion, they tend to rebuild it on their assumptions.
A compilation simply assembles your figures. A review applies limited procedures and provides limited assurance. An audit tests the figures and provides the highest level of assurance. Most lenders and buyers treat reviewed statements as a working minimum and audited statements as materially stronger.
A few of the questions and inputs you will see. Your answers and results stay in the diagnostic.
Use the EBITDA Quality Assessment to make a directional read of your business. This is not a lender quote, valuation opinion or commissioned diligence report.
Provide your details and work through 15 scored questions across five areas. Allow about 15 minutes; your pace may vary.
Choose the answer that describes your current position. The commentary explains how a buyer could read your answers in the section summaries and final read.
Read a score across five areas. The output is indicative, not a formal quote or verified diligence opinion.
Review the recommended actions where gaps qualify. If no areas need remediation, maintain the evidence and revisit the read when your circumstances change.
Choose the next question you want to examine:
The EBITDA Quality Assessment applies TEOL Capital's Financial Truth Ladder to produce an indicative read on the defensibility of reported EBITDA across five sub-dimensions that quality of earnings providers commonly examine.
Owner Add-Backs Discipline looks at whether your pay, personal expenses and proposed adjustments have written support. A buyer or their accountant will examine each item against your records.
Normalization Quality looks at whether one-off items such as settlements, restructuring and acquisition costs are identified and supported rather than simply excluded from profit.
Run-Rate Defensibility looks at the evidence behind your forward view when recent customer wins or losses, pricing changes or other events make historical profit unrepresentative.
Accounting Policy Consistency measures methodology consistency over the lookback period including revenue recognition policy, accrual discipline, estimate methodology, and accounting policy changes. Position on the Financial Truth Ladder is determined materially by this sub-dimension.
Reporting Period Integrity measures the consistency and defensibility of financial reporting across the lookback period including monthly close discipline, year-end adjustment magnitude, and reconciliation between monthly and annual reporting.
Each of the five areas has three questions (15 in total). The four choices score 0, 1, 3 or 4 points and produce a composite on the Financial Truth Ladder: Rung 1 (0–20), Rung 2 (21–40), Rung 3 (41–60), Rung 4 (61–80), Rung 5 (81–100). There is no numeric EBITDA input.
The result shows a directional read on how defensible your reported profit appears from your answers. It does not calculate an adjusted EBITDA figure or predict which adjustments a buyer will accept. Where there are qualifying gaps, actions show what records and processes to strengthen.
Your answers are self-reported; they have not been verified against source documents. A commissioned quality of earnings review is needed to examine adjustments and rebuild the figure.
Sector multiples, adjustment ranges and stress factors in this tool are TEOL's illustrative calibrations, based on general market observation and TEOL's frameworks. They are not drawn from a single dataset and do not predict any specific outcome.