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Some interesting facts about adjusted EBITDA Normalised Profitability Measure: Adjusted EBITDA provides a normalised measure of a company's profitability by excluding certain non-cash expenses (such as depreciation & amortization) and non-operating expenses (such as interest & taxes). This allows potential buyers or sellers to focus on the core operational performance of the business Comparison Across Industries: Adjusted EBITDA enables comparisons of profitability across companies in different industries, as it removes the effects of varying capital structures, tax rates & accounting methods Indicator of Cash Flow: While EBITDA does not directly represent cash flow, it serves as a proxy for cashflow from operations by excluding noncash expenses. This can be particularly useful when assessing a business's ability to generate cash to service debt or fund growth initiatives Adjustments for One-Time Expenses: Adjusted EBITDA often involves making adjustments to reported EBITDA to account for one-time or non-recurring expenses, such as restructuring costs, legal settlements, or asset impairments. This provides a more accurate reflection of the ongoing operational performance of the business Focus on Growth Potential: In the context of selling a business, adjusted EBITDA can highlight the growth potential of the company by presenting its profitability after adjusting for factors that may not be indicative of future performance. Negotiation Tool: Adjusted EBITDA serves as a critical metric during negotiations between buyers & sellers. It provides a basis for determining the valuation of the business & can influence the terms of the transaction, such as the purchase price, earn-out provisions, or financing arrangements Investor Confidence: For potential investors or acquirers, a strong adjusted EBITDA demonstrates the business's ability to generate consistent & sustainable earnings, which can instill confidence in the investment or acquisition decision Focus on Operational Efficiency: By excluding certain expenses that are not directly related to the core operations of the business, adjusted EBITDA allows stakeholders to assess the company's operational efficiency & profitability more accurately Transparency & Disclosure: Proper disclosure & transparency regarding the adjustments made to calculate adjusted EBITDA are essential to maintain credibility & trust with investors, lenders & other stakeholders Limitations & Criticisms: While adjusted EBITDA is a widely used metric, it has its limitations and critics. Some argue that it can be manipulated by management to present a more favorable picture of the business's performance, highlighting the importance of thorough due diligence & careful analysis when using this metric for decision-making Thumbs up if you like enjoy reading my articles/content :) #buying #selling #businesses

WHAT IS FREE CASH FLOW? ·       The Free Cash Flow of a company le equal to all the cash that enters a company minus all the cash that leaves a company over a certain period. ·       You can calculate it as follows: Free Cash Flow= Operating Cash Flow - CAPEX ·       The Operating Cash Flow measures the amount of cash that is generated by a company's normal business operations. ·       The capital expenditures (CAPEX) show how much money a company has used to maintain or buy physical assets. WHAT CAN A COMPANY DO WITH ITS FCF? ·       The company can do different things with its Free Cash Flow: 1-    Reinvest for organic growth. 2-    Pay down debt. 3-    Acquisitions and takeovers (M&A) Paying out dividends. 4-    Buying back shares FCF MARGIN ·       This metric indicates how much cash a company is generating per dollar in sales. ·       FCF margin = (Free Cash Flow/sales) Visa for example has a Free Cash Flow margin of 60.2% ·       This means that for every $100 in sales, Visa generates $60.2 in pure cash. FCF > NET INCOME ·       Earnings are an opinion; cash is a fact. ·        While earnings are an accounting metric, Free Cash Flow looks at the money that entered and left the firm over a certain period. FCF CONVERSION ·       The more earnings are translated into. FCF, the better. ·       Seek for companies with a FCF conversion of at least 85% ·       FCF Conversion (free cash flow/net earnings) FREE CASH FLOW YIELD ·       The Free Cash Flow yield (FCF Yield) of a company is a great way to look at the valuation of a company. ·       Free Cash Flow yield Free Cash Flow per share/ stock price. ·       The higher this ratio, the cheaper the stock. #FCF

WHAT IS FREE CASH FLOW? ·       The Free Cash Flow of a company le equal to all the cash that enters a company minus all the cash that leaves a company over a certain period. ·       You can calculate it as follows: Free Cash Flow= Operating Cash Flow - CAPEX ·       The Operating Cash Flow measures the amount of cash that is generated by a company's normal business operations. ·       The capital expenditures (CAPEX) show how much money a company has used to maintain or buy physical assets. WHAT CAN A COMPANY DO WITH ITS FCF? ·       The company can do different things with its Free Cash Flow: 1-    Reinvest for organic growth. 2-    Pay down debt. 3-    Acquisitions and takeovers (M&A) Paying out dividends. 4-    Buying back shares FCF MARGIN ·       This metric indicates how much cash a company is generating per dollar in sales. ·       FCF margin = (Free Cash Flow/sales) Visa for example has a Free Cash Flow margin of 60.2% ·       This means that for every $100 in sales, Visa generates $60.2 in pure cash. FCF > NET INCOME ·       Earnings are an opinion; cash is a fact. ·        While earnings are an accounting metric, Free Cash Flow looks at the money that entered and left the firm over a certain period. FCF CONVERSION ·       The more earnings are translated into. FCF, the better. ·       Seek for companies with a FCF conversion of at least 85% ·       FCF Conversion (free cash flow/net earnings) FREE CASH FLOW YIELD ·       The Free Cash Flow yield (FCF Yield) of a company is a great way to look at the valuation of a company. ·       Free Cash Flow yield Free Cash Flow per share/ stock price. ·       The higher this ratio, the cheaper the stock.

Net working capital is crucial in M&A transactions, and for good reason: it’s the working capital that the buyer will need to continue operating a company and meeting its obligations post-close. It’s important to calculate this figure accurately, otherwise both parties could find themselves navigating a purchase price adjustment.

What is EBITDA and Why Does it Matter for Business Valuations?  EBITDA, stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, is a way to see how well a business is doing financially. It's not perfect but helps compare how profitable different businesses are. When people want to buy or sell a business, they often start by looking at its EBITDA. Big buyers might use past deals to decide how much a business is worth based on its EBITDA. Different buyers might use different ways to figure out the value. They also check if the EBITDA number is fair by making sure it doesn’t have any strange expenses or huge jumps in money. But sometimes, buyers don't fully trust the EBITDA number the seller gives. They might do their own checks to be sure it's right. For the best value, businesses should explain how they figured out their EBITDA number and show how they plan to make even more money in the future. Understanding EBITDA helps everyone know what to expect when buying or selling a business. #EBITDA #WHATISEBITDA #Valuations #Business #Interest #Taxes #Depreciation #Amortization #buying

After Shark Tank, the term EBITDA gained popularity, but what is it? Have you ever thought about it? In the following post it is written in a way that is very easy to understand. #EBITDA #WEALTHGRAM #SALE #BUY

Liquidity is main driver for any company sustainability and growth Earning is opinion vs Cash is fact

Why you need to know your company's EBITDA 👇 If you’re considering a sale of your business, EBITDA is no longer an abstract metric— it plays a large role in determining your company’s worth. To make the most of the transaction and ensure you receive fair market value, it is crucial to know your company’s EBITDA— and what it means. The good news? Calculating and understanding it is simple, explained here: https://bit.ly/3KzXSLZ #ebitda #sellmybusiness #businessvaluation

@BusinessSaleBasics - What Do We Mean By Good Books and Records? When you are selling a company making sure that your accounts are up to date is critical. Remember...the buyer is buying future cash flow but they are using the past results as a major input to predict this. The most recent past results are often a good predictor of the current run rate of the business. This run rate will drive cash flow which will help them understand whether a deal they are contemplating from a cash flow perspective and help them get comfortable with any debt commitments they might make. Filed accounts are generally more accurate than management accounts so during a business sale it is generally a good idea to accelerate the filing process if the last fiscal year accounts are not filed. The reason is that the accountant often makes adjustments for many things like stock, accrued expenses, WIP, depreciation, etc. that help us understand the real profitability of the company. It is also important to have management accounts available since the last fiscal year-end. Sometimes the last fiscal year could have been 6 or 9 months in the past so the buyer will want to see that the company is on track. Having accounts readily available that are accurate is also one of the best indicators of a well-run company and inspires confidence in the financial data. For the full video on good books and records, please see the link in the comments field below. #businesssales #businessvaluation #mergerandacquisitions

If you merge with or acquire another business, the transaction will have financial reporting implications. Notably, your company’s balance sheet will look markedly different than it did before the business combination. It’s important to correctly identify intangibles, estimate fair value and allocate the purchase price in M&As, even when a deal’s cash-equivalent purchase price isn’t readily apparent. Accounting errors on the acquisition date can lead to restatements and impairment write-offs in subsequent periods. Contact us to get it right from the start. We can help ensure your fair value estimates are supported by market data and reliable valuation techniques.https://bit.ly/49mF7a0