Adjusted EBITDA
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What is Adjusted EBITDA?
Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a financial metric used to assess a company's operational performance. It modifies the standard EBITDA by excluding non-recurring, irregular, or non-cash expenses to provide a more accurate reflection of ongoing profitability.
How to Calculate Adjusted EBITDA
To calculate Adjusted EBITDA, start with the EBITDA figure:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
Then, add back any adjustments for non-recurring items such as restructuring costs, non-operating income, and non-cash expenses:
Adjusted EBITDA = EBITDA + Adjustments
Example
Consider a company with:
- Net Income: $1 million
- Interest: $200,000
- Taxes: $300,000
- Depreciation: $100,000
- Amortization: $50,000
- One-time restructuring cost: $150,000
EBITDA Calculation:
1,000,000 + 200,000 + 300,000 + 100,000 + 50,000 = 1,650,000
Adjusted EBITDA Calculation:
1,650,000 + 150,000 = 1,800,000
This adjustment provides a clearer view of the company’s recurring earnings by removing the impact of one-time costs.
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