SOS! VP about to rip my head off over EBITDA disparity
I confess I dont know jacks**t about financial moedlling beyond the basics of 3 statements as a (new & nervous virgin) intern.
Somehow lied and begged my way into an internship at an AMC. Very next week VP handed a proprietary (scary AF) looking template and has asked to build a financial model for a public co. Was able to figure most of it except for one tiny snag (well.. VP practically insulted me short of blaming me for having an unevolved neanderthal brain).
So,
- I have calculated EBITDA starting from Revenue>Op. Income>EBITDA>Adj. EBITDA (incl. adjustments as reported by company).
- Although Company calculates EBITDA from Net INcome> Adjusted EBITDA.
- However, I am not able to reconcile (my life literally depends on this) the difference in Adj. EBITDA as per my calculations and Company Reported EBITDA.
- As per the VP I should be showing the flow as EBITDA>(+/- adjustments)>Adj. EBITDA>(+/- adjustments)>Company reported EBITDA. HOW TF DO I DO THIS?
Please help!
Does anyone have a method do this? like reconciling cash flow from direct to indirect method?
Any videos/post that help explain this?
Thank you in advance (crying and shaking in a corner).
P.S. NONE of the financial modelling courses I did (free & paid) covered this situation.
Based on the highest ranked content on WSO, here's a structured approach to reconcile EBITDA and Adjusted EBITDA:
Understand the Calculation Methods:
Identify Adjustments:
Reconciliation Steps:
Common Adjustments:
Example Flow:
Resources:
By following these steps, you should be able to reconcile the differences and present a clear flow of adjustments to your VP. Good luck!
Sources: How do you get from EBITDA to free cash flow?, EBITDA vs. Operating Cash Flow vs. Free Cash Flow, EBITDA vs. Operating Cash Flow vs. Free Cash Flow, Thought Exercise / Interview Question about EBITDA, Why even use EBITDA?
ChatGPT it?
That’s because Adj EBITDA is fake. You could ask 10 banks to come up with an Adj EBITDA calc for same company and would have 10 different answers.
What is adjusted ebitda? GAAP vs non-GAAP?
There’s no GAAP EBITDA per say but it’s GAAP EBIT + D&A + “one time” adjustments that should be non-recurring but they’re often recurring
enh.. its all made-up. Understood that its a non-GAAP measure, however no matter the method used for arriving at Adj. EBITDA, mathematically 2 different Adj. EBITDAs should still be able to reconcile right? I've realized that reconciling it in this manner is a good measure to explain what exactly the company is reporting differently, and also serves as a check to make sure no adjustments were missed.
Yeah but then you also have credit agency adjustments etc. I hear you that it can all be reconciled with netting items but point being is it’ll always be calc’d differently.
I bring up the ratings agency point because S&P / Moody’s can have the same company at multiple turn difference of leverage.
Make sure you are adjusting for tax impacts if going from EBIT to adj. EBITDA. If the company is starting at net income, their adjustments are likely including the tax impacts.
well the Company is adding back tax in its bottoms-up method and I'm not deducting it in my top-down method. So definitely its not the culprit. Unless you meant something else?
In your top down method, are you adjusting the one-off expenses they are adding back for the tax savings they generate? Or are you simply adding back the tax adjusted numbers the company gives you? Sometimes they will give the tax adj. expense numbers if they start at net income. These numbers will exclude the tax benefit they receive from the expenses. You need to adjust for this when working back to EBITDA. Just to be clear, I'm guessing as I don't have the numbers but this is a common thing I have run across.
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