Financial Spreads: EBITDA

Hello everyone, 

I'm a Scottish undergrad looking to break into IB in a graduate position by Sep 2026. 

I'm currently taking various online courses e.g. Yale, Illinois Gies, among others and I'm slightly struggling to understand how financial spread multiples exactly work together to produce comparable outcomes. I understand the formulas etc but not exactly the real meaning behind each element.

My basic questions are, could someone please explain. what, why, and how these elements effect EBITDA in simple terms: 

Amortisation of intangible assets;

Negative litigation settlements;

Sales of physical assets;

Loan forgiveness;

Impairment of goodwill

Any help and additional general advice  for a non-traditional Geograhy student looking to break into IB would be very much appreciated! 

Thanks

6 Comments
 

To break it down for you, here's how each of the elements you mentioned affects EBITDA and why they matter in financial spreads:

1. Amortization of Intangible Assets

  • What it is: Amortization refers to the gradual write-off of intangible assets (like patents, trademarks, or goodwill) over their useful life.
  • Impact on EBITDA: Since EBITDA excludes amortization, this expense is "added back" to net income when calculating EBITDA. This is because amortization is a non-cash accounting charge and doesn't reflect the operational cash flow of the business.
  • Why it matters: It helps isolate the company's operational performance by removing non-cash expenses tied to past investments.

2. Negative Litigation Settlements

  • What it is: These are one-time legal expenses or settlements that a company might incur.
  • Impact on EBITDA: Typically, these are excluded from EBITDA because they are considered non-recurring and not part of the company's core operations.
  • Why it matters: Excluding such items ensures EBITDA reflects the ongoing operational profitability of the business, not one-off events.

3. Sales of Physical Assets

  • What it is: When a company sells physical assets (like equipment or property), it may record a gain or loss on the sale.
  • Impact on EBITDA: Gains or losses from asset sales are excluded from EBITDA because they are non-operational and non-recurring.
  • Why it matters: Including these would distort the true operational performance of the company.

4. Loan Forgiveness

  • What it is: This occurs when a lender forgives a portion or all of a company's debt.
  • Impact on EBITDA: Loan forgiveness is excluded from EBITDA because it is a financial activity, not an operational one.
  • Why it matters: EBITDA focuses on operational performance, so financial activities like loan forgiveness are irrelevant to this metric.

5. Impairment of Goodwill

  • What it is: Goodwill impairment happens when the value of goodwill (an intangible asset from acquisitions) is written down due to a decline in its value.
  • Impact on EBITDA: Impairment charges are excluded from EBITDA because they are non-cash and non-recurring.
  • Why it matters: Excluding goodwill impairment ensures EBITDA reflects the company's operational profitability without being skewed by accounting adjustments.

General Advice for Breaking into IB as a Non-Traditional Student:

  1. Networking: Start reaching out to alumni, professionals, and recruiters on LinkedIn. Build relationships and seek informational interviews.
  2. Technical Skills: Keep honing your financial modeling and valuation skills. WSO's Investment Banking Interview Course could be a great resource to prepare for technical questions.
  3. Storytelling: Develop a compelling narrative about why you're transitioning from geography to finance. Highlight transferable skills like analytical thinking, research, and problem-solving.
  4. Internships: Secure internships in finance-related roles to build relevant experience. Even boutique firms or unpaid roles can add value to your resume.
  5. Stay Persistent: Breaking into IB from a non-traditional background is challenging but not impossible. Stay focused, keep learning, and leverage every opportunity to showcase your passion and skills.

Good luck, and remember, even geography majors can map their way to Wall Street!

Sources: EBITDA vs. Operating Cash Flow vs. Free Cash Flow, Difficult Accounting Technical - IBD, Beyond the guide: a list of real interview technical questions, 21 Finance Interview Questions and Answers, 21 Finance Interview Questions and Answers

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

Makes sense thank you now I just need to keep learning about everything included 👍👍

 

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