Youtube Video https://youtu.be/vjXeGJT_zQI – . When we talk about Mergers & Acquisitions we often hear about these terms (EBITDA and Adjusted EBITDA), so what are they and what do they mean.
EBITDA and Adjusted EBITDA have a few key differences. EBITDA, stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It identifies a company’s financial profits by calculating the Revenue minus Expenses (excluding interest, tax, depreciation and amortization).
Adjusted EBITDA is EBITDA plus any and all expenses that a new owner will not incur. For example, when we calculate Adjusted EBITDA, we pull line items from the financial statements. Like current owner’s travel and entertainment, excessive rent prices higher than the market value, one time charges like server upgrades, development costs. We also normalize the current owner’s salary to reflect the market salary. Also add back any litigation expenses, donations, personal benefits that are run under the business. Including personal vehicle, personal vehicle, life, and health insurances.
Basically, we deduct irregularities and deviations from the financial statements. Adjusted EBITDA is a valuable tool that is used to analyze businesses. This is for the purpose of valuation for Mergers & Acquisitions platform. Of course there are other terms like cashflow, sellers discretionary earnings, adjusted cashflow. We will explore these terms in our future videos.
We have written several articles on how these financial terms come into play on our website. For more information on these financial terms please browse our site – https://gillagency.co