What is an EBITDA Adjustment?

Adjustments to EBITDA are costs a company removes from its earnings to show what it presents as underlying profit. They are typically one-time items such as a lawsuit or a restructuring, plus recurring non-cash items such as stock-based compensation.

EBITDA is earnings before interest, taxes, depreciation and amortization — a rough measure of operating profit. Adjustments come in two flavors. One-time items are costs management says won't recur, such as a large legal settlement. Non-cash items recur every year but involve no cash leaving the door, and stock-based compensation is the classic case, adjusted out annually because it is paid in shares rather than dollars. The number carries real weight, because lenders and acquirers price deals and set loan limits off adjusted EBITDA. The catch is discretion: management chooses what qualifies, so analysts read the list line by line, since a genuine one-off and a cost that reappears every year deserve very different treatment.

A report card with sticky notes. One says to ignore the F in March because of the flu — a genuine one-off — while another excludes the PE grade every semester, on principle. The more notes attached, the more you want to grade the student yourself.