Adjusted EBITDA Is in the Eye of the Beholder
June 14, 2023DownloadsDownload Article
This article from ABI Journal was first published June 1, 2023. The entire publication is available at: https://www.abi.org/abi-journal/adjusted-ebitda-is-in-the-eye-of-the-beholder
A growing number of companies provide an adjusted EBITDA computation in their financial reporting. The wide discretion that companies have in deciding on addbacks to EBITDA, the frequent lack of line-item details in the adjusted EBITDA bridge from net income, the non-GAAP nature of EBITDA and adjusted EBITDA, and management’s inclination to present adjusted EBITDA as favorably as possible within some reasonable bounds are just several of the factors that make this practice an issue. Last year, FTI Consulting analysis concluded that highly leveraged companies were more likely to have larger EBITDA addbacks (unrelated to stock-based employee compensation) irrespective of industry sector or company size, and that these addbacks tended to understate leverage computations by boosting adjusted EBITDA. In this article, our experts continue that analysis through 2022 and discusses changes in adjusted EBITDA trends across industry sectors now that COVID-related impacts on the corporate sector have subsided.
Reprinted with permission from the ABI Journal, Vol. XLII, No. 6, June 2023