Guide to Adjusted EBITDA
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What Is Adjusted EBITDA?
Interest This refers to Interest on debt, such as loans for small businesses. EBITDA excludes this expense because the amount of debt a company takes on depends on the financing structure of a company. Taxes Because taxes vary by region, companies with similar sales can pay significantly different amounts in taxes. This can skew their net income and make it difficult to accurately compare two companies in different locations. Amortization and depreciation Depreciation spreads out the cost of a tangible asset over the course of its useful life, while amortization does the same with intangible assets, such as patents, licenses, copyrights, and trademarks. EBITDA adds these non-cash expenses back to net income because they depend on the historical investments the company has made, not on its current operating performance.
Adjusted EBITDA Formula
Who Uses Adjusted EBITDA & What Does It Tell You?
How Does Adjusted EBITDA Work?
Calculating Adjusted EBITDA
Start-up costs Litigation costs Special donations One-time gains or losses Investments Maintenance and repairs expenses Foreign exchange income or losses Above-market owners’ compensation (private companies) Real estate expenses New hire expenses
How Is Adjusted EBITDA Used?
Pros and Cons of Adjusted EBITDA
Adjusted EBITDA Example
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Generally, it can be easier for entrepreneurs starting out to qualify for a loan from an online lender than from a traditional lender. Lantern by SoFi’s single application makes it easy to find and compare small business loan offers from multiple lenders. Traditionally, lenders like to see a business that’s at least two years old when considering a small business loan. SBA loans are guaranteed by the U.S. Small Business Administration and typically offer favorable terms. They can also have more complicated applications and requirements than non-SBA business loans.
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