What is adjusted EBITDA?
Adjusted EBITDA is EBITDA with one-time, non-recurring or non-cash items removed, used to show a company's normal earning power when valuing it. Typical add-backs include deal fees, litigation, restructuring and above-market owner pay. SEC staff guidance says measures calculated differently from EBITDA should carry a different name, such as Adjusted EBITDA, and treats excluding normal, recurring cash operating expenses as potentially misleading.
Why it matters to a revenue leader
Adjusted EBITDA is usually the number a deal was priced on and the number the exit will be priced on. Multiples magnify every adjustment. At 8.5 times EBITDA, a $1M add-back raises the implied price by $8.5M. Revenue leaders affect it through pricing, margin and the cost of selling. Know which sales and marketing costs were added back, because a buyer's diligence will test whether they really were one-time.
How to calculate it
Adjusted EBITDA = EBITDA + agreed add-backs of one-time or non-cash expenses minus one-time gains.
Common mistake: adding back costs that recur, such as a yearly "one-time" recruiting push or system project, which inflates the number buyers apply a multiple to.
Example
Fictitious numbersAn environmental services company reports EBITDA of $9.0M. It adds back $0.6M of acquisition fees and $0.4M for a one-time lawsuit, reaching adjusted EBITDA of $10.0M. A buyer's review later finds that $0.3M of the acquisition fees were ongoing integration staff costs and removes that add-back.
"Which of our sales and marketing costs were treated as one-time, and would they survive a buyer's review?"
Sources
- Adjusted EBITDA checked 9 Oct 2026
- Non-GAAP Financial Measures: Compliance and Disclosure Interpretations (SEC) checked 9 Oct 2026