Non-recurring items (one-time items)

A seller’s adjusted earnings may remove items said to be one-off. BDC says EBITDA should be normalized by removing non-recurring expenses or revenue to represent the future earnings capacity of the company. CBV Institute defines normalized earnings as economic income adjusted for extraordinary, nonrecurring, noneconomic or other unusual items, to eliminate anomalies and facilitate comparisons. See which add-backs are legitimate.

Gains as well as costs

The BDC wording covers revenue as well as expenses, so a one-off gain can be taken out just as a one-off cost can. BDC says the information a valuator typically gathers includes a list of discretionary and non-recurring or one-time expenses. The CRA’s policy statement on business equity valuations lists, among the risk factors in a capitalization rate, the stability or irregularity of the maintainable level of earnings or cash flows. The narrower one-time expense entry covers the cost side.

What to ask

• What is each item, in which period did it occur, and which document shows it?
• Has a similar item appeared in more than one year?
• Were one-off gains removed as well as one-off costs?
• Who prepared the adjustments, and will the seller’s accountant walk through them?