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What is Adjusted EBITDA?

Basically synonymous with Normalized EBITDA, Adjusted EBITDA is a non-GAAP method of making earnings valuations a little more standardized between companies.

Adjusted Earnings is a valuation that has many moving parts in the form of the interest, taxes, depreciation and amortization that might be included there, in addition to the non-GAAP nature of the methods.

EBITDA removes all of those moving parts and looks at the Earnings before any of the other arithmetic interferes, hence the name Earnings Before Interest, Taxes, Depreciation, and Amortization.

One way to arrive at the EBITDA is to take Net Income and add back in all the things that were just mentioned. Adjusted EBITDA takes the EBITDA and brings it in line with previous years while also adjusting for factors that may skew the numbers, such as higher-than-normal consulting fees or rent paid from related companies, windfalls such as settlements, excessive salaries, bonuses, office expenses, etc.

All of the expenses and revenues of the company will be monitored and adjusted to fit the averages of industry peers. After such adjustments, a more insightful comparison between companies can be made.

Keywords: non-GAAP, Normalized EBITDA, standardization, adjusted earnings, Earnings vs EBITDA,