Is there one approach to calculate operating profit / EBITDA?
There are different types of earnings
or profit: gross profit, operating profit,
net profit before tax, net profit after tax etc.
Financial statements
under local GAAPs or IFRS normally
do not include EBITDA.
Earnings before interest, taxes,
depreciation and amortisation
(EBITDA) are widely used in corporate
finance: business valuation, project
finance and many other purposes.
They include Operating profit
which is ~ to Earnings before interest
and profit taxes. So you may
add back DA and get EBITDA.
It is assumed to be close to operating cash
flows, with some adjustments to be made.
However, there is no one for all approach
to calculate EBITDA in theory /
practice of CF.
IMPORTANT:
Calculation may differ
depending on the purpose.
− For business valuation purposes –
we usually use normalized EBITDA
excluding some extraordinary items
of income / expense
− For bank finance and covenants
− For management decisions and other.
You need to be careful with items of
income and expense as there is a room for
manipulation to demonstrate better or
worse case for some particular reason.
However, in order to properly calculate
EBITDA you may need several notes
and breakdowns of different types
of historical or projected
income and expense.
Description
RUBmln.
100
(40)
60
(10)
(10)
5
(15)
Renenue
COS*
Gross margin
S&D expenses*
G&A expenses*
Other income
Other expense*
Operating profit ~ EBIT
30
…
* Including depreciation
expense for the period in total
=> EBITDA ~
(15)
45
Income and expense items to be included in the calculation of EBITDA:
Not included
Profit / loss from revaluation
of assets and liabilities and
other assets / liabilities
Profit / loss from sale of FA /
IFA
Income and expense on
exchange rate differences
Income from interest
subsidies
Loss / profit received in the
previous periods
May be
included
Income
from
subsidies
related
to the
operating
activities
of the
company
Subject to agreement due to specifics
of the project / business
Income / expenses for accrual / release of
reserves
One-time and non-operating income /
expenses
Income /
companies
expenses
with
Study QUESTIONS:
− Consider example.
Assume Other expenses
include
RUB 12 mln
for death of cattle.
How we treat them in
EBITDA for
(i) business valuation,
(ii) financial covenants?
− Consider
Loan agreement
in project finance.
Do we need to prescribe
all components
of EBITDA calculation?
Why / why not?
− What are
the major EBITDA
ratios / multiples
in corporate finance?
affiliated
Fines, penalties, forfeits, etc.
Profit / loss from the sale of goods and
other assets
Expenses for social. needs and other nonproduction. costs
− What is EBITDAR? /
EBITDARM / OIBDA?
− Normal EV/EBITDA
multiple is from 4 to 10.
In some cases
it could be 10-15.
Name 2-3 reasons
for that.
Source: KPMG illustrative FS 2018
Source: PWC illustrative FS 2018
Examples