Mods changed the title
OG: MD told me I had "Hot Tits" when I asked him how to calculate EBITDA for software cos.
Okay so two ways of calculating EBITDA:
(1) EBIT + D&A from Cash Flow Statement
(2) E + Interest + Tax + D&A
When you look at software companies' income statements, you'll notice the amortization of cap. software costs/acquisition-related stuff built into the OpEx line items (R&D, S&M, G&A). Hence the following reconciliation:
GAAP G&A Expense
(-) Amortization of Capitalized Internal Use Software Costs
(-) SBC
= Non-GAAP G&A Expense
So how do you calculate EBITDA for companies that exhibit "Amortization for [insert cause]" in their OpEx Line Items?
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bump
Similar experience. Accidentally ran into my VP in gray sweats and she said I was packing.
Anyways you just add it back no? Where it appears shouldnt matter
I thought since it's already embedded in the OpEx line items, the amortization of that item would be counted twice when you add it back.
How would you be double counting it?
It’s lowering operating income so you would add it back to EBITDA. Potential common error of your signs are flipped (expenses are (negative)) and you + Amortization you’d be double penalizing
Chenz
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Lol I got happy for a sec
But D&A aren’t broken into two pieces typically
Add the amortizations back.
Just to be clear, two types of amortization there, one is amortization of capex representing internal developed software/patents etc. Second is the amortization of Goodwill which was generated from acquisitions. Both to be added back.
I personally won’t add back SBC because if those are not opex I don’t know what they are.
Goodwill isn't amortized. It's tested for impairment with a triggering event.
My homie in Christ…in certain sponsor backed deals the company can elect to amortize goodwill.
To this posts broader point you add back capitalized software to EBITDA unless you are a rating agency which would discount the capitalized software as an actual expense flowing through the p&l resulting in lower EBITDA.
software EBITDA will always add-back SBC. in the grand scheme of EBITDA add-backs it's one of the less egregious ones
Depends. I think it’s 100% legit for lenders to add back sbc to ebitda.
It’s pretty dumb to do so in a valuation though.
Look at what is added back as non-cash in CF statement
Still not getting the concept, if by add-back would you do:
GAAP EBIT
+ D&A from CFS
- Amortization that is already built into the line items (since both G&A expense and D&A on CFS include the same Amortization amounts)
= EBITDA
why is g&a on the cash flow statement?
D&A can be baked into several income statement line items. but 100% of it will always be on the cash flow statement. Why can't you simply take EBIT from the income statement and add D&A from the cash flow statement?
You don’t amortize tits, you have to depreciate them, those assets have a limited life and only get worse without significant maintenance capex
straight line depreciation or double declining?
Depends on the size of the assets, typically larger assets will see accelerated depreciation
Their salvage value is the divorce money you get when your husband opts for a split-out to do an M&A with a more modern pair of tits (read: younger).
The goodwill on the husband's balance sheet is the sugar daddy money he reimburses her every month, over the EV of those assets
How could you possibly downvote this with such a prestigious title
When you're such a hardo that your nipples go hard when calculating EBITDA
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