how to calculate EBITDA when interest is embedded in a line item
Hi,
I'm trying to calculate EBITDA bottom up: net income + income tax + interest + D&A
Problem is that in the financials of a company I'm looking at the interest is embedded in a line item called "Interest, bank charges, and foreign exchange". Of course, there is no reference to the notes section about it. Searching for the value, or key words such as "interest" don't yield any results either.
Should I just add back the figure with a "note" in excel?
If you have a balance sheet you can just create assumption for the interest rate and apply it to the principal.
Depending on the company it may be fine to just add the whole line back. Only pause I would have is if it’s a retail company - cc fees are a big expense for those businesses.
So I'm analyzing a lot of companies in the tech industry. Among the companies, some report their "interest" as ' interest and bank charges', 'interest and other', 'interest and misc income', 'finance costs', 'accretion and finance costs'. Sometimes they report 'interest' with separate line items for 'accretion expense' and 'bank charges' - not sure if I should lump them all as interest with respect to ebitda calc.
Most of the time notes have color on the debt obligations but are super dense to read. Should I just suck it up and get reps in reading through these dense texts trying to pick out info - I've tried it for about 5 companies and couldn't find anything
btw: I'm not doing a dcf or anything so no need to model out projections - I'm essentially doing comps
Maybe a dumb question, but are they public? If so look at what debt they have out. If not do what above poster said...look at what they have outstanding and find comps to see what the int rate is and pick the median maybe?
yeah they're public but after reading yours and the above response I just want to clarify that I'm basically doing comps analysis, not like dcf nor building out 3 statement models
My 2 cents on this
To address your comments
- The reason I'm building it bottom up is because after going through 50+ companies' financials, there were far too many inconsistencies with how they reported their opex among each other: some companies would include interest in opex, some companies would report specific line items as opex of which the same line items others wouldn't, some don't even have an opex section and just report all their expenses in like 10 line items. There are no line items like "SG&A", "R&D", it's all fragmented into individual line items.
- I'm not exactly doing comps, but I'm inputting revenue, net income and EBITDA into excel. Since I have net income I figured it was another push to calculate it bottom up. The structure of my excel worksheet also doesn't really lend itself to doing top down since I only have the three cells to play with (rev, ni, ebitda), meaning I would have to enter like 15+ numbers in one cell
- The companies are really small (average market cap ~10m) where 99% have negative revenues (tech). I don't really know how to respond to the leverage question, but interest is generally less than 10,000 rarely more than100,000
negative revenues? that's pretty unusual even for tech
Honestly wouldn't think adding back all of those values (bank charges, FX) would be that bad if you're trying to get to adj. EBITDA.
what if I was getting not-adjusted EBITDA
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