How do you adjust EBITDA for a comp analysis?
A core Valuation interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Adjust for one-off and non-recurring items to get 'normalized' or 'adjusted' EBITDA: remove restructuring charges, litigation settlements, one-time gains/losses, share-based compensation (add back or not – depends on convention), and normalize for M&A effects. The goal: make EBITDA comparable across companies by reflecting recurring operating performance only.
WHAT INTERVIEWERS LISTEN FOR
- ✓Remove one-off items
- ✓Normalize for M&A effects
- ✓Reflect recurring operations
- ✓Adjust share-based compensation
- ✓Exclude non-recurring gains/losses
COMMON MISTAKES
- ✗Using reported EBITDA without adjustments
- ✗Including restructuring charges as recurring
- ✗Ignoring M&A normalization
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