Your Adjusted EBITDA is Still Not Cash Flow.
Here are 10 sneaky EBITDA Adjustments to be aware of. Depending on the side you're playing for, you may find yourself arguing pro or against these
Here are 10 sneaky EBITDA Adjustments to be aware of. Depending on the side you're playing for, you may find yourself arguing pro or against these
1️⃣ Provisions
⚫ Guarantees. Future tax obligations. Asset Retirement Obligations. Asset impairment. Losses. Pensions. Severance costs.
⚫ Guarantees. Future tax obligations. Asset Retirement Obligations. Asset impairment. Losses. Pensions. Severance costs.
2️⃣ Non-operating income
⚫ This is usually passive income which isn’t related to the company’s core operations.
Most parties will agree that if the company isn’t actively in the business of generating that income, it shouldn’t be part of the company’s EBITDA.
⚫ This is usually passive income which isn’t related to the company’s core operations.
Most parties will agree that if the company isn’t actively in the business of generating that income, it shouldn’t be part of the company’s EBITDA.
3️⃣ Unrealized gains or losses
⚫ The typical view is that paper gains and losses don’t belong in EBITDA.
4️⃣ One-time revenue or expenses
⚫ These are the result of non-recurring transactions.
The typical view is that because they aren’t repeatable they do not belong in EBITDA
⚫ The typical view is that paper gains and losses don’t belong in EBITDA.
4️⃣ One-time revenue or expenses
⚫ These are the result of non-recurring transactions.
The typical view is that because they aren’t repeatable they do not belong in EBITDA
5️⃣ Foreign exchanges gains or losses
⚫ These are the result of incidental transactions outside the company’s core operations.
If the company isn’t an FX boutique or exchange, FX gains and losses typically aren’t part of the company’s EBITDA.
⚫ These are the result of incidental transactions outside the company’s core operations.
If the company isn’t an FX boutique or exchange, FX gains and losses typically aren’t part of the company’s EBITDA.
6️⃣ Goodwill impairment
⚫ This is a decrease in the value of goodwill reported following an acquisition. It is still typically considered a “paper loss” that doesn’t belong in EBITDA.
⚫ This is a decrease in the value of goodwill reported following an acquisition. It is still typically considered a “paper loss” that doesn’t belong in EBITDA.
7️⃣ Asset write-downs
⚫ These are decreases in the value of an asset, usually following non-recurring events and the usual consensus is that because they’re non-cash, they don’t belong in EBITDA.
⚫ These are decreases in the value of an asset, usually following non-recurring events and the usual consensus is that because they’re non-cash, they don’t belong in EBITDA.
8️⃣ Litigation or insurance expenses outside the regular course of business.
⚫ These are the result of non-recurring transactions such as one-time lawsuits, large financing deals or outlier commercial contracts.
Most will argue that if they aren’t repeatable, they don’t belong.
⚫ These are the result of non-recurring transactions such as one-time lawsuits, large financing deals or outlier commercial contracts.
Most will argue that if they aren’t repeatable, they don’t belong.
9️⃣ Owner compensation over/under market value
⚫ In private companies, owners often don’t pay themselves a fair salary, or they pay themselves more than a comparable executive role would pay an employee.
⚫ In private companies, owners often don’t pay themselves a fair salary, or they pay themselves more than a comparable executive role would pay an employee.
🔟Share-based compensation
⚫ Some will argue that share-based compensation isn’t actual cash outflows while others will maintain that they are real expenses incurred to attract and retain executive level talent.
⚫ Some will argue that share-based compensation isn’t actual cash outflows while others will maintain that they are real expenses incurred to attract and retain executive level talent.
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