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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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