The core valuation of any business is based on a multiple of adj. EBITDA (adj. EBITDA). Your company may also be valued based on a percentage of revenue or some additional unit of measure such as price per census patient.
EBITDA stands for Earnings Before Interest Taxes Depreciation and Amortization. It is a proxy for your company’s cash flow. It is a better measure of performance than profit because it removes all non-cash accounting expenses.
An addback is a non-recurring, personal or one-time expense that is unrelated to operating the company. A lease for a personal vehicle is a common addback. In some cases, ownership may be paying themselves more than the position pays in the market. This could be adjusted on the addback schedule. (View an Addback Chart Example.)
Adjusted EBITDA (which stands for Earnings Before Interest Taxes Depreciation and Amortization) is your company’s true or normalized Net Profits after accounting for one-time, non-recurring, or personal expenses. A multiple of your trailing twelve months (TTM) adj. EBITDA will strongly determine the basis of your company’s value.