Module 12
Reading Adjusted EBITDA (Non-GAAP Numbers)
All figures are for a fictional company, "TechBeast Corp", and are illustrative.
When you read an S-1, you will see a metric that management likes to highlight: Adjusted EBITDA.
GAAP stands for "Generally Accepted Accounting Principles", the standard accounting rules U.S. public companies follow. "Non-GAAP" or "Adjusted" metrics are customized measures that management believes show the underlying business more clearly. Companies must reconcile them to GAAP (as in the table below), but they can also make results look better than the GAAP numbers.
Interactive S-1 Example: The EBITDA Bridge
(Watch how a $55M loss becomes a $10M "profit".)
| Net Loss (the GAAP result) | $(55) | |
|---|---|---|
| Add Back: Interest and Taxes | $ 5 | |
| Add Back: Depreciation & Amort. | $ 5 | |
| EBITDA | $(45) | |
| 1. Still losing money. | ||
| Add Back: Stock-Based Compensation | $ 30 | |
| 2. Stock pay is excluded, but it still costs shareholders through dilution. | ||
| Add Back: Restructuring Costs | $ 10 | |
| 3. Treated as one-off. Check whether similar charges recur year after year. | ||
| Add Back: Legal Settlement | $ 15 | |
| 4. Can be a genuine one-off or a recurring cost of doing business. | ||
| Adjusted EBITDA | $ 10 | |
| 5. A $55M net loss now reads as a $10M "profit". | ||
Tap or hover a numbered marker to see what it means.
Beast Tip: Always start with the GAAP number. Treat Adjusted EBITDA as a supplement, and count how many add-backs show up in every period.