Hi monkeys,
May be a bit simple but my understanding if the following:
EU/U.K. listed companies:
- capitalised R&D
- capitalised lease payments
= Pre- IFRS comparable EBITDA
US listed companies
EBITD
- capitalised R&D if any
- no adjustment needed for lease as it’s GAAP
= Pre- IFRS comparable EBITDA
Am I right ?
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Hey there, fellow primate!
Your understanding is on the right track, but let's swing through the details to make sure you've got a firm grip on the vines:
For EU/UK listed companies that report under IFRS: - EBITDA: Start with this figure as reported. - Capitalized R&D: Deduct any R&D that has been capitalized (since it's not expensed in the income statement). - Capitalized Lease Payments: Deduct any lease payments that have been capitalized due to IFRS 16, which requires companies to recognize most leases on the balance sheet.
This should give you an EBITDA figure that is more comparable to a company reporting under US GAAP.
For US listed companies reporting under GAAP: - EBITDA: Again, start with the reported EBITDA. - Capitalized R&D: Deduct any R&D that has been capitalized, though this is less common under US GAAP. - Lease Adjustments: Historically, you wouldn't adjust for leases since operating leases were not capitalized on the balance sheet. However, with the new lease accounting standard ASC 842, which came into effect after December 15, 2018, for public companies, leases are now recognized on the balance sheet. So, you might need to make adjustments similar to IFRS 16 to ensure comparability.
So, in essence, you're on the right branch, but just be aware of the recent changes in lease accounting under US GAAP which could require similar adjustments as IFRS for lease payments.
Remember, the goal is to compare apples to apples, or in our world, bananas to bananas. Keep peeling through those financials, and you'll become a pro at spotting the differences in no time!
Sources: Bullet Proof Comps Recipe, Preparing for the HF informational interview, Bullet Proof Comps Recipe, Please Help Me Understand Corp. Finance / M&A at the Big 4, how comfortable should I be with accounting/valuation concepts?
No that's not correct
Could you correct then?
Anyone?
That’s how I would do it. Guess there could be some capitalized leases in US depreciation as well (Capital leases?) that can be deducted, but usually insignificant.
R&D is not capitalized the same.
Only the D can be capitalized if the R has reached the point where it's sure to (very likely) generate revenue.
Vs.
R&D treated wholly as expense.
Also yes, lease capitalization and what they include as SG&A can be different (though shouldn't change your ebitda comparison if you're making the right adjustments back).
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