Noob question: I find multiple different calculations of EBITDA on a given company. CapIQ says one thing, Bloomberg says another, and my own calculation says another thing. Which one do I use for a stock pitch?
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Hi Ivan Boesky, any of these discussions helpful:
If those topics were completely useless, don't blame me, blame my programmers...
would advise calculating your own and knowing what you did to arrive at that number.
comb through the most recent SEC filing and make your own adjustments to the EBITDA. provide a bridge from the company provided EBITDA to the one that you arrived at.
answer: stock based compensation expense
Bloomberg typically reports the "Adjusted EBITDA" figure a Company may provide in their press release / 10-Q. Not sure how CapIQ works.
Find the EBITDA reconciliation in the Company's filings and re-create it yourself. Its important to have a model showing what the Company thinks EBITDA is because the Street, more often than not, takes it on face value so you need it for an idea of what people are looking at. From there create your own reconciliation where you start with "Adjusted EBITDA" and take out inappropriate add-backs. This is your discretion really based on the financial statement notes/management commentary/experience. Your goal should be to take out "one-time, non-recurring" add-backs that are really multiple-time and recurring, but leaving non-cash adjustments such as impairments and eventually come to your own estimate of "Cash EBITDA".
So you should have a model that goes Net Income -> EBITDA -> Adjusted EBITDA -> Cash EBITDA -> Free Cash Flow or whatever else you want to do with it.
Its also helpful to have a separate schedule that tracks the cadence of management's add-backs that tells you what % of Adjusted EBITDA came from add-backs, etc.
Edit: Another thing that may be helpful, if its a debt heavy Company, is to look at the definition of "Bank EBITDA" in their credit agreement. Sometimes this EBITDA differs from Adjusted EBITDA, but its the metric the Company will use when they report covenant compliance with their lenders. A quick way to back into this number is to take their total debt (however defined for covenants) and divide it by the leverage ratio they may report in their 10-Q/K for their covenant. This is somewhat higher level than what you're asking, but still good to know. I've seen people come out with short theses accusing a Company of being in violation of their leverage covenants based on EBITDA derived from "consolidated" financials, but the Bank EBITDA may exclude financials from unrestricted subsidiaries, non-guarantors, foreign subsidiaries, etc...
Super helpful. Thank you! +1 SB
If you have access to CapIQ, I would just pick an analyst report from a good contributor (JPM, RBC, DB, etc) and roll with that if I'm torn between what number to use.
This is a very sad thread with some bad advice. (And some reasonable advice.)
Why do you say that?
Because:
1) EBITDA is a useless, made-up number
2) You're asking which source's EBITDA you should "use" when half the art of valuation is figuring out what level of earnings you are comfortable capitalizing (the other half is at what rate). Really, what value do you think your stock pitch will have if you simply take one source's EBITDA and multiply it by 8/9/10?
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