financial-metrics
EBITDA is a non-GAAP earnings measure that starts from operating profit and adds back depreciation and amortisation, so lenders and buyers can compare cash-like operating performance across capital structures and accounting depreciation policies.
IFRS does not require an EBITDA line. The measure grew in leveraged finance and M&A because it sits close to operating cash generation while ignoring two things buyers often re-underwrite separately: the capital structure (interest, net debt) and the accounting pattern of depreciation and amortisation.
That convenience is also the risk. EBITDA is not cash. It ignores CAPEX, working-capital swings, tax, stock-based compensation in many “adjusted” versions, and the fact that some businesses must replace assets just to stand still.
The cleanest bridge from a compliant income statement is:
EBITDA = Operating profit (EBIT) + Depreciation + Amortisation
An algebraically equivalent path from the bottom of the P&L is:
EBITDA = Net profit + Interest + Tax + Depreciation + Amortisation
The two paths only match if “operating profit” and “net profit” are defined consistently (no below-the-line items parked in strange places). In European mid-market files, teams usually start from IFRS operating profit, then add the D&A disclosed in the notes or cash-flow statement.
Adjusted EBITDA is a second, negotiated number. Typical add-backs include owner compensation above a replacement salary, one-off legal or restructuring costs, and non-recurring professional fees. Typical push-downs include under-market rents from related parties and missing sales-and-marketing spend. There is no IFRS definition of “adjusted.”
Illustration only. The company is hypothetical; figures are rounded for teaching.
A specialty manufacturer reports:
| Line | Amount |
|---|---|
| Revenue | €42.0m |
| Operating profit (EBIT) | €5.4m |
| Depreciation | €1.6m |
| Amortisation of intangibles | €0.4m |
| Reported EBITDA | €7.4m |
| Owner salary above market | €0.3m |
| One-off warehouse move | €0.2m |
| Adjusted EBITDA | €7.9m |
Reported EBITDA margin is 17.6%; adjusted is 18.8%. A buyer running EV/EBITDA at 8.0x on the adjusted number implies €63.2m of enterprise value before questioning whether the warehouse move is truly non-recurring and whether maintenance capex of €1.9m should have been treated as “cash EBITDA.”
EBITDA does not measure free cash flow, does not capitalise operating leases in older GAAP presentations the way a credit analyst might, and can be inflated by aggressive revenue cut-off or capitalised costs. Damodaran’s long-standing critique is that investors confuse a financing-and-depreciation-neutral operating number with a return number.
Dazur stores the audit trail from statutory operating profit to reported EBITDA to adjusted EBITDA as structured fields, not a slide footnote. That is what lets a valuation, a lender pack and an investor data room describe the same business.