Adjusted EBITDA Calculator
- EBITDA
- Add-backs
Add-backs are 36.0% of adjusted EBITDA. Buyers and lenders will ask for proof of each one, so keep invoices and payroll records ready.
How the adjusted EBITDA calculation works
EBITDA = net income + interest + taxes + depreciation and amortization
$150,000 + $20,000 + $40,000 + $30,000 = $240,000.
Add back owner pay above market
If the owner takes $250,000 but a hired manager would cost $150,000, add back the $100,000 difference. If the owner is underpaid, the adjustment is negative.
Add back one-time and non-cash costs
$25,000 of one-time costs and $10,000 of non-cash items take adjusted EBITDA to $240,000 + $135,000 = $375,000.
Multiply by a valuation multiple
At an example multiple of 4×, $375,000 × 4 = $1,500,000 of enterprise value, before debt.
Worked example. A business with $150,000 net income, $20,000 interest, $40,000 taxes and $30,000 depreciation has EBITDA of $240,000. The owner takes $100,000 more than market pay, and there were $25,000 of one-time costs and $10,000 of non-cash items, so adjusted EBITDA is $375,000, an 18.8% margin on $2,000,000 of revenue. At an example multiple of 4×, the business is worth $1,500,000.
Adjusted EBITDA FAQ
What is adjusted EBITDA?
EBITDA with unusual, one-time and owner-specific items removed, so it shows what the business would earn under a new owner in a normal year. Buyers, lenders and valuers use it to price a business.
What is the adjusted EBITDA formula?
Adjusted EBITDA = net income + interest + taxes + depreciation and amortization + add-backs − one-time income. Add-backs include owner pay above market, one-time costs and non-cash charges.
What are common EBITDA add-backs?
Owner salary above market pay, owner perks and personal expenses run through the business, one-time legal or moving costs, non-cash charges such as stock-based pay, and losses on selling assets. Each one needs proof, such as invoices or payroll records.
What is the difference between EBITDA and adjusted EBITDA?
EBITDA is a fixed formula from the income statement. Adjusted EBITDA also removes items that will not continue under a new owner, so two people can reach different adjusted figures for the same business.
Is adjusted EBITDA the same as SDE?
No. Seller's discretionary earnings (SDE) adds back all of the owner's pay, not only the part above market. SDE is common for small owner-run businesses; adjusted EBITDA for larger ones with a hired manager.
What multiple of adjusted EBITDA is a business worth?
It depends on industry, size, growth, risk and the deal terms. The calculator does not supply a multiple; use one from a business broker, a valuer or recent sales of similar businesses.
Can add-backs be negative?
Yes. If the owner is paid less than a manager would cost, or the business had one-time income, adjusted EBITDA is lower than EBITDA.