Valuation terms

Adjusted EBITDA aims to show the earning power of ongoing operations. Nonrecurring and nonoperating income and expenses are reviewed, along with compensation or rental arrangements that differ from market terms.

Every adjustment requires a rationale and supporting evidence. Calling an expense nonrecurring does not establish that it will disappear in future years. Adjusted EBITDA then provides the earnings basis for the EBITDA valuation method. See also Normalization.

Example

Reported EBITDA is EUR 0.8 million. Add EUR 0.15 million for the portion of management compensation above market levels and EUR 0.05 million in nonrecurring restructuring costs. Deduct a nonrecurring asset-sale gain of EUR 0.10 million. Under these assumptions, adjusted EBITDA is EUR 0.9 million.