Adjusted EBITDA

What it means

Adjusted EBITDA is EBITDA cleaned of one-off, unusual or non-business items. The aim is to show the company’s sustainable operating result, meaning what it would earn under normal conditions without the exceptional effects of a single year.

Typical adjustments include costs of litigation, restructuring or relocation, one-off gains on asset sales, owner remuneration well above or below market level, private expenses booked through the company, or rent paid to a related party at a non-market price. Each adjustment can raise or lower EBITDA.

Adjusted EBITDA is a key input in business valuation and the sale of a business. Buyers often price a deal as a multiple of EBITDA, so every euro of adjustment is multiplied in the price. That is why adjustments are the subject of the toughest negotiation.

How it works in practice

When preparing a company for sale, we go through the accounts for recent years with the client and identify items that can be defended as one-off. For each adjustment we prepare support: invoices, contracts and an explanation of why it will not recur. Without evidence, the buyer will not accept it.

We calculate the owner remuneration adjustment by comparing it with the cost of a manager who would take over the owner’s role after the sale. If the owner drew a low salary and took the rest as dividends, the adjustment lowers EBITDA; if they paid themselves above market, it may raise it.

Buyers verify adjustments during due diligence and often produce their own version. A gap between the seller’s and buyer’s views is sometimes bridged with an earn-out, where part of the price depends on future results.

What to watch out for

The most common mistake sellers make is adjusting too aggressively. If “one-off” costs appear every year, they are not one-off. The buyer will spot this easily and lose trust in the other numbers too, weakening the seller’s position across the negotiation.

Adjusted EBITDA is not an accounting measure, and no standard defines it precisely. Each party may calculate it differently. Contracts, such as loan covenants or earn-outs, must therefore specify exactly which adjustments are allowed and how they are calculated.