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name: ebitda-financial-analysis
description: Use this skill to build and interpret EBITDA and the analysis around it — computing EBITDA from the financials, normalising it with defensible add-backs, bridging period-over-period changes, and framing valuation multiples. It produces a sourced, assumption-explicit financial analysis for the CFO/controller and the deal team to review — never audited figures, a valuation opinion, or investment advice.
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# EBITDA & Financial Analysis

> **What this is** — a repeatable, AI-assisted working method for computing EBITDA, building a defensible **adjusted EBITDA** bridge, decomposing margin and period changes, and framing valuation multiples — with every number sourced and every adjustment labelled, for the CFO/controller and deal team to own.
> **What this is NOT** — **not audited financial statements, not a valuation opinion, not accounting or investment advice, and not a substitute for a CFO, controller, auditor, or licensed valuation professional.** EBITDA is a **non-GAAP** measure; adjustments are judgment calls that can mislead if abused. Every figure and add-back is a draft requiring professional review and reconciliation to GAAP/IFRS before it is relied on, presented to investors, or filed.
> **Non-GAAP notice** — Adjusted EBITDA must reconcile to the nearest GAAP/IFRS measure (net income) and follow the applicable non-GAAP presentation rules (e.g., SEC Reg G / Non-GAAP C&DIs) when shown to investors. This method flags that reconciliation; it does not certify it.

## When to use this
- Someone needs EBITDA and adjusted EBITDA built from the P&L with the add-backs laid out and defended.
- A board or investor packet needs a period-over-period EBITDA bridge that explains *what actually drove the change*.
- A margin question ("why did profitability move?") needs decomposition into price, volume, mix, and cost.
- A deal or fundraise needs indicative valuation framing via comparable multiples — clearly labelled as indicative.
- Raw financials need turning into a sourced, assumption-explicit analysis the CFO can review, not a black box.

## Operating principle
Every number ties to a source, every adjustment is labelled and defensible, and the analysis reconciles to GAAP. The method assembles and structures the analysis fast; the CFO, controller, auditor, and valuation professional decide what is correct, presentable, and relied upon. Adjusted EBITDA is a lens, not a truth — its honesty depends entirely on the discipline of the add-backs.

## Capability 1 — EBITDA build & normalisation
**Goal.** Compute EBITDA and a defensible adjusted EBITDA, with every add-back labelled and justified.
**Inputs.** Income statement, notes, detail on unusual/non-recurring items, prior-period figures, the accounting basis (GAAP/IFRS).
**Method.**
1. Compute **EBITDA** from the bottom up: net income + interest + taxes + depreciation + amortisation — tying each line to the statement.
2. Build **adjusted EBITDA** by proposing add-backs, each **classified and justified**: genuinely non-recurring (litigation settlement, restructuring), non-cash (stock comp — flag as contentious), owner/related-party normalisation, or one-time items.
3. **Challenge every add-back**: is it truly non-recurring, or a real cost of the business dressed as one? Flag aggressive or questionable adjustments explicitly rather than passing them through.
4. Build the **GAAP reconciliation**: net income → EBITDA → adjusted EBITDA, so the bridge to the audited number is transparent.
5. Note **quality-of-earnings** concerns (revenue recognition, working-capital timing, capitalisation choices) as items for the professional.
**Output.** An EBITDA / adjusted-EBITDA schedule with a labelled add-back register and a GAAP reconciliation.
**Quality bar (what the professional receives).** Every figure ties to a source; every add-back is classified, justified, and challenged; questionable adjustments are flagged, not hidden; the reconciliation to net income is explicit.

## Capability 2 — Margin & variance decomposition
**Goal.** Explain *why* profitability changed by decomposing it into drivers — not just report that it moved.
**Inputs.** Two or more periods of financials, revenue and cost detail, volumes/units and prices where available.
**Method.**
1. Build the **period-over-period EBITDA bridge**: start EBITDA → named drivers → end EBITDA, each driver quantified.
2. Decompose revenue change into **price / volume / mix** where the data allows; decompose cost change into fixed vs variable and one-time vs structural.
3. Separate **operating leverage** effects (margin moving with scale) from genuine efficiency or deterioration.
4. Tie each bridge component to a **source and an assumption**, and flag where a driver is estimated rather than measured (**modelled vs measured** — the same discipline as the rest of this portfolio).
5. Surface the **two or three drivers that actually matter** rather than an undifferentiated list.
**Output.** A quantified EBITDA / margin bridge with each driver sourced and labelled modelled-or-measured.
**Quality bar (what the professional receives).** The bridge reconciles start to end; drivers are quantified and sourced; estimates are labelled; the dominant drivers are called out, not buried.

## Capability 3 — Valuation-multiple framing
**Goal.** Frame indicative valuation via comparable multiples — explicitly as a directional range, never an opinion of value.
**Inputs.** Adjusted EBITDA (Cap 1), comparable companies/transactions, the metric basis (EV/EBITDA, EV/Revenue), sector and size context.
**Method.**
1. Assemble **comparable multiples** (trading comps and/or precedent transactions), each cited, with the basis stated (LTM vs forward, EV/EBITDA).
2. Apply the range to the subject's adjusted EBITDA to produce an **indicative enterprise-value range** — a range, never a point.
3. Adjust for **comparability**: size, growth, margin, risk, control premium, liquidity — as qualitative caveats, not false precision.
4. Bridge **enterprise value to equity value** (net debt, minority interests, preferred) so the number means what it claims.
5. Label the entire output **indicative and for professional validation** — a licensed valuation professional or banker owns any opinion of value.
**Output.** An indicative valuation range with the comps, basis, comparability caveats, and the EV-to-equity bridge — all labelled indicative.
**Quality bar (what the professional receives).** Multiples are cited with basis; the output is a caveated range, not a point estimate or opinion; comparability adjustments are explicit; EV-to-equity is bridged; nothing is presented as a valuation opinion.

## Worked example (illustrative)
*Illustrative only — hypothetical figures.* A company shows €10m net income; the method builds EBITDA (+interest, +tax, +D&A) to, say, €18m, then proposes adjusted EBITDA with a €1.2m restructuring add-back (justified, non-recurring) while **flagging** a proposed "one-time marketing" add-back as likely a real operating cost — not passing it through. The period bridge shows EBITDA up mostly on volume and operating leverage, with a mix headwind, each quantified and sourced. Valuation framing applies a cited 8–11× EV/EBITDA comp range as *indicative*, adjusts down for size/liquidity, and bridges to equity via net debt — labelled for the CFO and banker to validate. Every number ties to a source; the aggressive add-back is surfaced, not smuggled.

## Guardrails & escalation
- **Escalate to the CFO/controller, auditor, and (for value) a licensed valuation professional or banker:** any figure presented to investors or filed, any audited-number reliance, any opinion of value, and any aggressive or borderline non-GAAP adjustment.
- **Never** present adjusted EBITDA without its GAAP reconciliation, pass through an add-back you can't defend, state a point valuation as fact, or present any of this as audited figures, a valuation opinion, or investment advice.
- **Flag aggression explicitly:** every questionable add-back and every estimated driver is labelled, not hidden — the integrity of adjusted EBITDA lives or dies on this.
- **Reconcile to GAAP/IFRS** and follow non-GAAP presentation rules whenever the figure leaves the building.

## References & sources
- **Non-GAAP presentation** — SEC **Regulation G** and the Non-GAAP Financial Measures C&DIs; the requirement to reconcile to the nearest GAAP measure and not to mislead.
- **GAAP / IFRS** income-statement structure for the EBITDA build and reconciliation.
- **Quality-of-earnings** and add-back discipline as used in transaction diligence (distinguishing non-recurring from recurring, non-cash flags).
- **Valuation** — comparable-company and precedent-transaction multiples (EV/EBITDA, EV/Revenue), enterprise-to-equity bridge, and comparability adjustments (e.g., Damodaran on relative valuation). Indicative only; a licensed professional owns any opinion of value.

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*Part of Ed Chen's AI skill set — how one designer absorbs unfamiliar, regulated, C-level work quickly by pairing AI with rigor and professional review. https://edwson.com*