Adjusted EBITDA

An earnings metric that removes non-recurring, non-cash, or unusual items from standard EBITDA.

Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a non-GAAP financial metric used to evaluate a company's core operating performance. It starts with standard EBITDA and further adds back non-cash expenses like stock-based compensation, one-time restructuring costs, acquisition expenses, or write-downs. Investors use Adjusted EBITDA to compare the operational profitability of companies with different capital structures, tax regimes, or non-operating expenses. It is often used as a proxy for operating cash flow generation before working capital changes. However, investors should exercise caution: because it is a non-GAAP metric, management teams have significant discretion over what they 'add back,' which can sometimes artificially inflate the perceived profitability of a highly leveraged or unprofitable business.

A company reports a GAAP Net Loss of -$100 million. It adds back $50 million in interest, $10 million in taxes, $80 million in depreciation/amortization, and $30 million in stock-based compensation to arrive at an Adjusted EBITDA of $70 million.