Practitioner notes
Guides for decisions behind the numbers
Quality of earnings, financial modeling, valuation and real estate. By Sergei Mochtchenkov, CFA.
Financial glossary →Articles coming soon.
Quality of earnings & due diligence
A purchase price is only as dependable as the earnings behind it. Quality of earnings work connects reported results to supporting records, sustainable operations and cash. These guides cover the decisions buyers, sellers and lenders face before a transaction closes: which add-backs need evidence, what an owner’s replacement costs, how working capital changes the cash needed at closing, and when the SBA requires independent analysis. I separate a proposed adjustment from an accepted conclusion. A spreadsheet bridge is useful, but it cannot establish whether a cost really disappears after the sale. Start with the underlying ledger, invoices, payroll and bank activity, then identify unresolved questions. For SBA financing, involve the lender before commissioning work; provider approval and reliance arrangements matter alongside report scope. The examples here are hypothetical and the tools are directional. Use them to organize a data request and frame the issues to resolve, not to replace transaction-specific diligence.
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Quality of earnings
A signed quality of earnings report by Sergei Mochtchenkov, CFA: sustainable EBITDA, revenue quality and cash conversion before you transact.
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SBA 7(a) Quality of Earnings Requirement for $3M+ Acquisitions
When SBA 7(a) acquisitions need QoE, how the $3M business-price test works, and what to agree with your lender before commissioning a report.
9 min read · Updated 2026-10-18
EBITDA add-backs: evidence, recurring costs and owner replacement
An EBITDA add-back is a proposed adjustment, not free earnings.
6 min read · Updated 2026-10-18
Working capital pegs, closing adjustments and debt-like items
A working capital peg defines the operating capital the seller must deliver at closing.
6 min read · Updated 2026-10-18
Financial modeling
A financial model should explain how operating decisions become earnings, funding needs and cash. These guides start with an integrated income statement, balance sheet and cash flow statement, then move to the scenarios and checks that make a forecast usable. Revenue needs operating drivers, not just a growth percentage. Hiring, capital spending and collection timing must change with those drivers. A downside case is especially useful when it shows which management actions remain possible and when funding would be needed. I distinguish accounting relationships from assumptions: a balance-sheet check can detect a broken link, but it cannot validate demand. Before sharing a workbook, trace the opening balances, document important inputs and test how outputs respond to a change. The articles and browser tools help you identify questions before a board review, fundraising process or diligence exercise. They are starting points for analysis, not substitutes for a model built around your actual records and operating constraints.
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CFO operating model
A driver-based operating model that shows where margin, cash and pricing can improve.
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How to build an integrated three-statement financial model
An integrated model connects operating assumptions to the income statement, balance sheet and cash flow statement.
6 min read · Updated 2026-10-18
Scenario vs. sensitivity analysis: building a usable downside case
Sensitivity analysis changes one assumption while a scenario changes a coherent group of assumptions.
6 min read · Updated 2026-10-18
How investors stress-test your financial model in due diligence
The eight things a diligence team does to your model in the first hour, and how to make sure none of them produce a surprise.
9 min read · Updated 2026-10-18
Valuation
Valuation is a set of assumptions made explicit, not a single number discovered in a spreadsheet. These guides explain how discounted cash flow, comparable companies and transaction multiples answer different questions. A DCF needs a defensible cash-flow forecast and a discount rate matched to the risks and currency of those cash flows. A multiple needs comparable economics, consistent accounting and a clear bridge from enterprise value to equity value. Neither method removes uncertainty. Compare results, identify what drives the range and test the assumptions with the greatest effect on the conclusion. Terminal value often dominates a DCF, so stable-state margins, reinvestment and growth deserve more attention than extra decimal places. The worked examples are hypothetical and the calculators intentionally simplified. Use them to explore sensitivity and prepare better questions about a valuation, not as fairness opinions or recommendations to buy or sell an investment. Transaction terms and the purpose of the valuation still matter.
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Valuation
A defensible valuation range with the DCF, comparables and precedent transactions behind it.
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WACC and terminal value: the assumptions behind a DCF
Match the discount rate to the currency and risk of the cash flows.
6 min read · Updated 2026-10-18
EBITDA multiples: from enterprise value to equity value
An EBITDA multiple estimates enterprise value only when earnings and comparables are defined consistently.
6 min read · Updated 2026-10-18
DCF vs. comparables: which valuation method fits your stage
Why a DCF on a pre-revenue company is theatre, why comparables break at the top of a cycle, and how to weight both honestly.
10 min read · Updated 2026-10-18
Real estate
Real estate underwriting is a timing problem as much as a margin problem. Land, construction spending, loan draws, lease-up and exit proceeds arrive in different periods, and that timing determines peak equity and investor returns. These guides cover the recurring errors in a development pro forma, the funding schedule that connects sources to uses, and the distribution waterfall that allocates cash between partners. A project can show an attractive profit and still run out of cash before stabilization. A promote can also look different depending on how the agreement defines preferred return, catch-up, hurdles and capital recovery. I make those conventions explicit rather than assuming one universal structure. The examples are hypothetical; the waterfall calculator uses a stated whole-deal convention and cannot replace the partnership agreement. Read the articles alongside the actual financing terms, monthly budget and distribution provisions. The objective is to expose mismatches early enough to change the plan, not to imply that projected returns are assured.
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Real estate models
Underwriting that survives a lender's credit committee and an equity partner's IC memo.
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Real estate equity waterfalls: preferred return, catch-up and promote
An equity waterfall allocates distributable cash under the partnership agreement.
6 min read · Updated 2026-10-18
Construction funding and loan draws: modeling the equity gap
Build construction funding monthly, linking eligible spending to loan draws, interest, fees and equity contributions.
6 min read · Updated 2026-10-18
Real estate development pro forma: 7 errors that kill deals
Seven recurring modelling errors found in development underwriting, each of which has cost a sponsor a deal or a promote.
11 min read · Updated 2026-10-18
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