Adjusted EBITDA
AdvancedAdjusted EBITDA is earnings before interest, taxes, depreciation and amortization, further adjusted to exclude items that management considers unusual, non-recurring or non-cash, such as restructuring costs and share-based compensation.
Companies report adjusted EBITDA to show what they consider their underlying operating performance. Common adjustments include restructuring and severance costs, acquisition-related expenses, share-based compensation, impairments and gains or losses on asset sales.
For example, a company with EBITDA of 20,000,000 might add back 2,000,000 of restructuring costs and 3,000,000 of share-based compensation, reporting adjusted EBITDA of 25,000,000.
Adjusted EBITDA is widely used in loan agreements, valuations and private equity deals, often as the basis for leverage limits and acquisition prices.
It is not defined by accounting standards, so each company decides what to adjust. This flexibility can make results look better than they are. Costs labelled as one-time sometimes recur every year, and share-based pay is a real cost to shareholders. Regulators require listed companies to reconcile adjusted measures to standard figures. Investors should review each adjustment carefully.
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