Adjusted EBITDA
Last updated
Quick Answer
Adjusted EBITDA is earnings before interest, tax, depreciation and amortization after normalizing adjustments, and it is not a GAAP measure.1,2
What it is
In a transaction it is the negotiated output of the quality of earnings process rather than a figure produced by the accounts: management proposes add-backs, the buyer's provider tests each one, and what survives is what the multiple is applied to. The definition that binds afterwards is the one written into the credit agreement or the purchase agreement, which is frequently not the one in the model.1,2
Operational context
What good looks like
Why It Matters
Most middle-market price movement between letter of intent and signing runs through this number. An add-back is defensible when it is genuinely non-recurring, documented, and correctly sized — not when it is merely labelled one-off.1
Term Family
Related concepts
Frequently Asked Questions
What is Adjusted EBITDA in venture capital?
In a transaction it is the negotiated output of the quality of earnings process rather than a figure produced by the accounts: management proposes add-backs, the buyer's provider tests each one, and what survives is what the multiple is applied to.
Why is Adjusted EBITDA important for startups?
Understanding Adjusted EBITDA is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.T3-25 — Warren Averett (CPA firm)What Happens in a Quality of Earnings Analysis?Warren Averett (CPA firm)(Adjusted EBITDA is earnings before interest, tax, depreciation and amortization after normalizing adjustments, and it is not a GAAP measure.)secondary · T3 · valuation · metric
- 2.T3-26 — The Bonadio Group (CPA firm)Common Quality of Earnings AdjustmentsThe Bonadio Group (CPA firm)(Adjusted EBITDA is earnings before interest, tax, depreciation and amortization after normalizing adjustments, and it is not a GAAP measure.)secondary · T3 · valuation · metric
- 3.T3-30 — Midwest CPAWhat Is a Quality of Earnings Report?Midwest CPA(Adjusted EBITDA is earnings before interest, tax, depreciation and amortization after normalizing adjustments, and it is not a GAAP measure.)secondary · T3 · valuation · metric
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