Good question, to keep it simple I assumed no depreciation/interest/tax essentially making the net income = to EBITDA for this example, later on in the video you can see a more full adjustment including all the variables. In practice you are correct, you calculate your financial statement EBITDA first (NI + Paid Taxes + D&A + LTD Interest) and then begin making these owner-specific adjustments.
Great content! Could you please advise, where can I get some more practical examples or case studies for EBITDA, Net Debt and WC normalizations? Happy to pay for these of course.
Very valuable informations, One question what if the business(entity her self) own the property that she is operating from , does Adj EBITDA need to factor that in as well?
Yes, even if the real estate is in the operating company, you still need to account for the true cost of supporting the value of the real estate. In these scenarios, usually the buyer buys the assets of the business and leaves behind the real estate in the same operating company so the seller can lease it back to them.
Great stuff. Hoped to find some info on "out of period" items and "barter deals" that should impact revenue and hence EBITDA. Have you had a chance to see my questions on the other video (on NWC). Thanks
Not sure what you mean by out of period items, are you referring to adjustments to cost that need to be moved into other fiscal periods? Barter deals are a unique situation where the company has a special arrangement with a supplier or customer for a period of time (for ex: I sold a company division to you but as part of the deal I would like to receive 15% off any product I purchase from the division I sold to you for 5 years). In that scenario, you would back out the savings/earnings from the barter deal and allocate a separate value to it. If the barter deal persists for decades, then it may be justified to keep the savings in the EBITDA figure and make no adjustment.
Normalization of EBITDA is only internal to the buyer right, so as they can come up with a reasonable valuation taking into consideration pr forma financials and this doesn't necessarily be presented to seller other than, here is our bid offer, right?
Just one question on the example you have used that is the calculation of the net income, how did it come to 1.4k when net margin is 2.1k and opex 1.5k.
I work for a large company based in the finance and trust sectors who are doing aggressive business acquisitions every year. Would it be possible for me to get in contact with you regarding potential business you may have for sale?
This is great post that explains how to adjust EBITDA. Thank you!
Glad it was helpful!
Super glad you're back to posting, welcome back! Your videos were super helpful to me when I first became interested in finance two years ago.
This is super helpful especially with the detailed example, help me understand a lot adjustments!
I had to do a DD as an assignment. It helped me a lot. Thank you!
Thanks for the video. One question 14:13 why adj. EBITDA is net income after deductions of owner salary not adjustments from reported EBITDA?
Good question, to keep it simple I assumed no depreciation/interest/tax essentially making the net income = to EBITDA for this example, later on in the video you can see a more full adjustment including all the variables. In practice you are correct, you calculate your financial statement EBITDA first (NI + Paid Taxes + D&A + LTD Interest) and then begin making these owner-specific adjustments.
Thank you for this terrific lecture.
Great content! Could you please advise, where can I get some more practical examples or case studies for EBITDA, Net Debt and WC normalizations? Happy to pay for these of course.
Very valuable informations, One question what if the business(entity her self) own the property that she is operating from , does Adj
EBITDA need to factor that in as well?
Yes, even if the real estate is in the operating company, you still need to account for the true cost of supporting the value of the real estate. In these scenarios, usually the buyer buys the assets of the business and leaves behind the real estate in the same operating company so the seller can lease it back to them.
Great stuff. Hoped to find some info on "out of period" items and "barter deals" that should impact revenue and hence EBITDA. Have you had a chance to see my questions on the other video (on NWC). Thanks
Not sure what you mean by out of period items, are you referring to adjustments to cost that need to be moved into other fiscal periods? Barter deals are a unique situation where the company has a special arrangement with a supplier or customer for a period of time (for ex: I sold a company division to you but as part of the deal I would like to receive 15% off any product I purchase from the division I sold to you for 5 years). In that scenario, you would back out the savings/earnings from the barter deal and allocate a separate value to it. If the barter deal persists for decades, then it may be justified to keep the savings in the EBITDA figure and make no adjustment.
Normalization of EBITDA is only internal to the buyer right, so as they can come up with a reasonable valuation taking into consideration pr forma financials and this doesn't necessarily be presented to seller other than, here is our bid offer, right?
Just one question on the example you have used that is the calculation of the net income, how did it come to 1.4k when net margin is 2.1k and opex 1.5k.
Great content
I work for a large company based in the finance and trust sectors who are doing aggressive business acquisitions every year. Would it be possible for me to get in contact with you regarding potential business you may have for sale?
Fantastic!
gold
Thank you!