Financial Glossary
Adjusted EBITDA
Adjusted EBITDA is EBITDA modified to exclude one-time, non-recurring, or non-operating items so the figure represents normalized cash earnings from core operations. The formula begins with EBITDA, which is net income with interest, taxes, depreciation, and amortization added back, and then layers on adjustments for items such as owner perks, one-time legal costs, or non-operating gains and losses. It is one of the most widely used metrics in valuation and lending.
Problem & Application
Adjusted EBITDA is often the basis for a sale price multiple and for loan covenants, so it carries real money for owner-operated businesses. STR portfolios, campgrounds, and hospitality operators frequently have owner salaries, personal expenses, or startup-year costs that should be normalized before a buyer or lender evaluates the business. Because each add-back raises the headline number, every adjustment needs clear documentation, or diligence will discount the whole figure.
In Short
Adjusted EBITDA gives a normalized view of operating cash earnings and is central to how businesses are valued and how loans are sized.