Why does the same business show two different EBITDA numbers?

When a seller’s listing shows one EBITDA and your accountant calculates another, neither person is necessarily wrong. EBITDA is a calculation built on other numbers, and each step involves choices. BDC defines it as earnings before interest, taxes, depreciation and amortization, and says it is not equivalent to profit. The useful question is not which figure is right, but what each one includes. Three differences you can check on paper are set out below.

A different starting point

BDC says EBITDA is calculated by adding interest, taxes, depreciation and amortization back to net profit, and notes that only interest on short- and long-term debt belongs in the formula. If two people start from different profit figures, or add back different items, they will land on different EBITDA numbers. Ask which profit line each figure begins from, and which items were added back.

One figure has been adjusted

BDC lists failing to normalize earnings among common errors when owners value a company without a chartered business valuator: adjusting for special factors, such as discretionary and non-recurring items, and non-market-rate revenues and expenses. A seller’s figure may be normalized while an accountant’s first-pass figure is not, or the reverse. Each adjustment is a judgment. Ask for the support behind each one, such as the invoice for a one-time cost, and decide whether you accept it.

Different assurance on the statements

CPA Québec explains that audited statements carry reasonable assurance and reviewed statements carry limited assurance. It says a compilation provides no assurance, and statements with no accountant’s report carry none either. Ask what level of assurance sits behind the statements each EBITDA figure was built from.

What to ask for

• A reconciliation that walks from net profit to each EBITDA figure, line by line.
• The accountant’s report, if any, for each period used.
• The seller’s list of adjustments with supporting documents.

See also SDE vs EBITDA for how owner-focused earnings measures differ.