Construction
Quality of Earnings (QoE) in Construction refers to the evaluation of the sustainability, predictability, and accuracy of a contractor's stated earnings and cash flows. Because construction accounting heavily relies on estimates and long-term contracts, a QoE analysis focuses on assessing the financial health of the project pipeline. It uncovers aggressive accounting (such as over-billing or under-estimating costs to complete) and adjusts for non-recurring impacts to determine the true, normalized EBITDA and underlying profitability of the business.
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QoE in the construction sector presents unique accounting challenges, primarily driven by long-term revenue recognition methods (such as Over-time revenue recognition or the Percentage of Completion method).