---
title: "Adjusted EBITDA"
url: "https://mahouse.world/glossary/adjusted-ebitda"
type: "glossary term"
topic: "Valuation"
author: "Ihor Vlasov"
reviewed: "2026-09-20"
published: "2026-08-10"
---

# Adjusted EBITDA

Adjusted EBITDA is reported earnings before interest, tax, depreciation and amortisation with items added back or removed to show what the business earns in a normal year under the buyer's ownership — one-off costs out, an owner's above-market salary out, a discontinued product's losses out, and sometimes the run-rate of cost savings already made. It is the number sellers present, buyers test in a quality of earnings review, and multiples are applied to.

**Also known as:** Normalised EBITDA, Adjusted earnings, Pro forma EBITDA

## Key facts

- **Used at:** information memoranda, indicative offers, the price in heads of terms, debt covenants and management incentive plans
- **Binding:** no — until the sale agreement or a facility agreement defines it, at which point every add-back is a term
- **Typical add-backs:** restructuring and redundancy costs, litigation and settlements, transaction costs, the owner's compensation above market, one-off professional fees, share-based payment, start-up losses of a new line; typical deductions: the cost of a manager to replace the owner, capitalised costs that should be expensed, revenue recognised early
- **Typical dispute:** whether a cost is really non-recurring — a company that restructures every year has a recurring restructuring cost
- **Parties:** the seller and its adviser, who present it; the buyer's diligence team, which tests it; the lenders, whose leverage covenant is measured on their own definition

## How adjusted EBITDA works in practice

Reported EBITDA is the accounting result. Adjusted EBITDA is an argument: this is what the business would have earned without the things that will not happen again, and with the things that will. A seller's bridge from reported to adjusted lists each item, its amount and its reason; a good one is documented line by line — the invoice for the one-off fees, the board minute closing the product, the market survey supporting the salary adjustment. A bad one is a list of round numbers labelled "non-recurring".

The buyer's quality of earnings team accepts, rejects or reduces each add-back and adds its own deductions. Then it asks the harder question — is the adjusted number the run-rate? A cost saving made in the last quarter can be annualised; a price rise that customers have not yet absorbed cannot; a large customer that served notice is a deduction the seller did not make. Normalised EBITDA is the agreed answer, and the difference between the seller's adjusted figure and the buyer's normalised one, multiplied by the multiple, is the first thing the price moves by.

Lenders have their own version. A facility agreement's EBITDA definition caps the add-backs — typically pro forma cost savings at 10–25% of EBITDA — because a covenant measured on an uncapped adjusted EBITDA is not a covenant.

## Example

A fintech's reported EBITDA is €4.0m. The seller's adjusted figure is €5.5m: plus €0.5m of costs for a cancelled office move, €0.4m of the founder's salary above a market CFO's, €0.3m of legal fees on a dispute now settled, and €0.3m of run-rate savings from a February redundancy round. The buyer's team accepts the office move and the legal fees, halves the salary adjustment (a replacement manager will cost €0.25m, not €0.05m), accepts the redundancy savings but deducts €0.2m of severance still to be paid, and adds a deduction of €0.4m for a customer whose contract ends in October. Normalised EBITDA: €4.7m. At 9×, the seller's €49.5m becomes the buyer's €42.3m, and the negotiation settles at €44m — a price that both sides can now explain line by line.

## Common mistakes

- Add-backs without documents; every undocumented one costs credibility on the documented ones.
- Annualising a good quarter or a saving that has not yet shown up in the accounts.
- Adding back the owner's salary without deducting the cost of replacing the owner.
- Forgetting deductions — customers lost, prices that will not hold, costs capitalised — that a buyer will find.
- Agreeing a multiple on adjusted EBITDA in the heads and leaving the definition to the sale agreement.

## Related terms

- [EBITDA](https://mahouse.world/glossary/ebitda.md)
- [Quality of Earnings](https://mahouse.world/glossary/quality-of-earnings.md)
- [EV/EBITDA Multiple](https://mahouse.world/glossary/ev-ebitda-multiple.md)
- [Financial Due Diligence](https://mahouse.world/glossary/financial-due-diligence.md)
- [Free Cash Flow](https://mahouse.world/glossary/free-cash-flow.md)
- [Working Capital Adjustment](https://mahouse.world/glossary/working-capital-adjustment.md)

— Ihor Vlasov, M&A FinTech Expert. Last reviewed 2026-09-20. https://mahouse.world/authors/ihor-vlasov