So today me and my boss got into a discussion in regards to EBITDA when making corrections to a credit proposal to one of his credits (boring I know). He said that the way I calculate EBITDA is wrong since I supposedly take into consideration of the calculation other expenses when in fact all I do is take the operating income (EBIT) and add the depreciation to it. That's the way they taught it to me in corporate finance in school and even when practicing Wall Street Prep that's how the instructors teach it as well. But in order to make my question clearer below you can see an example of what I mean.
Revenues 350 Cogs 150
Gross profit 200
SG&A 30 R&D 20 D&A 10
EBIT (Operating Income) 140
Interest exp 20 Other expenses 10
EBT 110
Taxes @35% 38.5
NI 71.5
His EBITDA: My EBITDA:
NI 71.5 (EBIT) Operating Income: 140 Taxes 38.5 D&A: 10 Interest Exp 20 D&A 10
EBITDA: 140 EBITDA: 150
His argument is that I'm taking into consideration other expenses as part of the formula which I'm not all I'm doing is adding the EBIT + D&A. Am I a fucking moron and need to relearn corporate finance or I'm right and he needs to look back at his old college texbooks? Or we are both right but his produces a more True "EBITDA than mine?? thanks in advance for the responses !!
So it looks like he is including the other expenses in his EBITDA figure, whereas you aren't. This seems contradictory to what he is saying, but honestly it would just be infinitely easier to tell him that you thought about it but still don't completely understand his reasoning and ask him to take 15 minutes to walk you through how he wants you to calculate EBITDA and why.
Depends on what "other expenses" are. If they're one off, leave them out of EBITDA and add them back, otherwise include them. If they're stock based remuneration, do not add them back to EBITDA - this is a common one companies try to get away with.
Shock horror!! - there is no formula for EBITDA! Everyone makes their own based on what they deem acceptable to include or not include, companies will just add everything they can back to boost EBITDA, it's your job to find "real" EBITDA. So people have formula EBITDA (which is rarely relevant, particularity with distressed cos) and Adj. EBITDA.
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