Valuation
Adjusted EBITDA is EBITDA after add-backs and other changes that remove unusual, one-time or owner-specific items to show normal earnings.
Adjusted EBITDA starts with regular EBITDA and then adds or removes items so the number reflects normal, ongoing operations. It includes add-backs such as one-time costs, owner perks and unusual gains.
For example, a company reports $4.0 million of EBITDA. It adds back $0.4 million of one-time and owner costs and removes $0.1 million of one-time income. Adjusted EBITDA is $4.3 million.
This number is usually the one that sets price, so both sides care about it. Sellers want to defend every adjustment. Buyers want to test every one. A quality of earnings report is often the tie-breaker.
Keep your adjustments honest and documented. Overreaching can cost trust and slow a deal. For the full picture on price, read how private equity values a business.
Related terms
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