Walk reported EBITDA to a defensible run-rate adjusted EBITDA the way a Big Four QofE provider would. One-time items, run-rate normalizations, owner adjustments, pro-forma synergies — each line with the haircut a real underwriter would apply. Output: adjusted EBITDA, the value of the adjustments as a % of reported, and a quality flag based on how aggressive the bridge is.
Computing…
Each segment is a discrete adjustment line. Green = reported / floor; orange = uplift you're adding; red = haircut applied to pro-forma synergies; sage = adjusted total.
What QofE is for. A real Big Four QofE walks two parties from "what does the income statement say happened" to "what's the right run-rate cash earnings power of this business going forward." The buyer needs that number to bid. The seller wants it as high as possible. The QofE provider sits in the middle and writes a 60-page report defending each adjustment line.
The four buckets. Adjustments fall into four risk tiers. One-time costs (restructuring, M&A advisory, litigation) — usually defensible, low scrutiny. Owner adjustments (above-market salary, personal expenses) — scrutinized; backed up by replacement-cost analysis. Run-rate normalizations (annualizing partial-period contracts) — scrutinized; backed by signed contracts and ramp curves. Pro-forma synergies — heavily haircut; the buyer's own diligence team often refuses to underwrite these without their own work.
The aggressiveness flag. A clean QofE typically runs ≤10% adjustments to reported EBITDA. 10–25% gets scrutiny. 25–40% is "this is a roll-up and the seller is selling you the dream." Above 40%, it's not a QofE, it's a story. Modeled here as an automatic flag based on adjusted-vs-reported uplift.
The SBC question. Stock-based compensation is the cleanest battle line in modern QofE. Public-company GAAP treats SBC as a real cost (because it's dilutive). Private-equity tradition adds SBC back to EBITDA (because it's non-cash). Both are wrong on their own. The honest answer: subtract dilution-equivalent cash cost (option-pricing model), not the GAAP grant-date expense. Most LBO models cheat and use GAAP-or-zero. Set this line to zero unless you've explicitly diligenced.
What's NOT in this calc. Working capital normalization (need three years of monthly data to do properly), maintenance vs growth capex split (judgment-heavy; depends on asset class), revenue recognition adjustments (ASC 606 surprise hits), customer concentration analysis. Those need a real QofE — typically $200K–$500K and 6–10 weeks. This page is for first-pass triage. See the disclaimer.
For a real deal, this page does not substitute for QofE diligence. It's intended as a thinking tool — to triangulate whether a seller's "Adjusted EBITDA" claim is defensible before you spend $300K finding out.
→ Email [email protected] if you want to walk through a specific caseNothing on this page is investment, tax, or accounting advice. Educational tool for triage. See the full disclaimer.