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What is an EBITDA Adjustment?

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Used in a sentence

The Daily Ledger · Markets

The company reported an adjusted EBITDA of $45M after stripping out non-recurring legal fees.

The reader highlighted one word mid-article. Clicked broke down the finance term “adjusted EBITDA” into plain English:

Explained in three depths

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The Clicked way

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Overview

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.
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Overview

Adjusted EBITDA is the company going "here's our profit if you ignore some stuff." Some of it's fair — a freak lawsuit, or paying people in stock instead of cash. But somehow certain companies find new stuff to ignore every single year. 😎

A quick take — often all you need.

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Detail

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.
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Detail

Two kinds of thing get removed: actual one-offs, such as the lawsuit that genuinely won't repeat, and yearly-but-not-cash items, such as stock comp — real pay, but handed over in shares, so companies argue it shouldn't count. The number matters because banks lend against it, which is why finance teams polish it to a shine. But management picks what qualifies, and some discover that basically every cost is either one-time or non-cash. Pro move: count the add-backs. Two is fine; seven means someone's doing creative writing. 😎

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Analogy

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.
Deepest level reached.
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Analogy

It's your friend's dating-profile height: "6'2" in the right shoes" — one adjustment, fine, everyone does it. But when the height, the age, AND the photos are all adjusted, you start doing math before the date.
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Unfamiliar concept? A real-world example makes it click — fresh analogies on tap.

AI explanations may contain errors · Not professional advice

Formal definition — The same term, explained the usual way

In financial reporting, adjusted EBITDA refers to earnings before interest, taxes, depreciation, and amortization, further modified to exclude items management deems non-recurring, non-operational, or non-cash — such as restructuring charges, litigation settlements, impairments, and stock-based compensation. Because such adjustments are discretionary and fall outside standardized accounting frameworks, regulators require reconciliation to the nearest comparable measure, and analysts commonly re-derive the figure independently when assessing covenant compliance or transaction multiples.

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