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Glossary

Adjusted EBITDA

A non-GAAP measure of a company's operating profit that starts with EBITDA and adds back or removes costs management considers unusual or non-cash, such as restructuring or stock compensation.

What Is Adjusted EBITDA?

Adjusted EBITDA is a non-GAAP measure of a company's operating profitability. It starts with EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization, and then adds back or removes other items that management considers unusual, one-time, or not reflective of ongoing operations. Because each company chooses its own adjustments, the figure can differ widely between businesses, even within the same industry.

How It Is Calculated

Adjusted EBITDA usually begins with the company's net income and adds back interest expense, income tax expense, depreciation, and amortization to arrive at EBITDA. Further adjustments are then made, which commonly include:

  • Restructuring and severance costs
  • Legal settlements
  • Gains or losses on asset sales
  • impairment charges
  • stock-based compensation

Adjusted EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization + Other Adjustments

Why Investors Look at It and Its Limits

Supporters argue that the measure shows how the core business performs before financing decisions, tax environments, and large one-time or non-cash charges. It is often used to compare companies with different debt levels or capital structures, and lenders sometimes use it when assessing how much debt a business can carry.

Critics point out that the adjustments are chosen by management and are not standardized under accounting rules such as US GAAP or IFRS. Some recurring costs, such as stock-based compensation, may be excluded even though they are a real expense. Adjusted EBITDA also ignores the capital spending needed to maintain equipment and does not show how much cash the business actually generates. For that reason, many analysts compare it with free cash flow and with results prepared under standard accounting rules.

Public companies in the United States that report adjusted EBITDA must reconcile it to the most directly comparable GAAP measure, usually net income, under SEC rules. Reading that reconciliation is a useful way to see which adjustments were made and how large they are.

Updated October 15, 2026. For general education only; not financial, tax or legal advice.

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Related Terms

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

EBITDA is a profitability measure that shows a company's operating earnings before interest, taxes, depreciation, and amortization are subtracted, used to compare operating performance across businesses.

Impairment

An impairment is a reduction in the recorded value of an asset when its carrying value exceeds the amount it can recover, recognized as a loss on the financial statements.

Free Cash Flow (FCF)

Free cash flow is the cash a company generates from its operations after paying for the capital expenditures needed to maintain or expand its asset base, leaving cash available for owners and investors.

Net Income (NI)

Net income is the profit a company keeps after subtracting all its expenses, including operating costs, interest, and taxes, from its total revenue for a reporting period.

Operating Income

Operating income is the profit a company earns from its core business activities after paying operating costs, but before interest and income taxes are deducted.

Earnings Before Interest and Taxes (EBIT)

Earnings Before Interest and Taxes (EBIT) is a measure of a company's operating profit before deducting interest expense and income taxes, showing earnings from core business activities.

Generally Accepted Accounting Principles (GAAP)

Generally Accepted Accounting Principles (GAAP) are the standardized rules that companies in the United States follow when preparing financial statements, so that results are consistent, comparable, and transparent to investors.