Bubble Gum Co.’s operating profit is 5,000. It has a litigation charge of 1,000 in SG&A. D&A is 500. What is EBITDA?
I thought the answer would be $4,500. EBIT or operating income = Revenue -Expenses so $5000-$1000 of litigation expense. and then add D+A which would be $4000+$500=$4,500 turns out the correct answer is $6,500.
Any one care to explain?
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Here's how it works, your operating profit or operating income is $5000, add back your depreciation and amortization of $500 to get $5500. Then you make an EBITDA adjustment to account for the litigation charge of 1000 because its a non-recurring charge so you add that back. 5000+500+1000= $6500
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