Normalised EBITDA
Definition
Normalised EBITDA (also called adjusted EBITDA) is a company's earnings before interest, tax, depreciation and amortisation, restated to show the sustainable earning power a buyer would inherit. The reported figure is adjusted to remove one-off items, owner-specific costs and non-market arrangements — an above-market owner's salary, personal expenses run through the business, exceptional legal costs, or the effect of a related-party contract — and to add back or strip out anything that will not recur under new ownership. Because a business is usually valued as a multiple of normalised EBITDA, these adjustments directly change the price: a defensible add-back can be worth many times its value once the multiple is applied. Buyers scrutinise every adjustment in a quality of earnings review, so a seller needs evidence for each one. Presenting a clean, well-supported normalised EBITDA is one of the most valuable pieces of preparation an owner can do before a sale.
Complementary Terms
Concepts that frequently appear alongside Normalised EBITDA in practice.
A quality of earnings (QoE) review is an analysis of how sustainable and reliable a company's reported profits are, carried out during due diligence. Rather than re-auditing the accounts, it tests whether earnings reflect genuine, repeatable trading: it examines revenue recognition, customer concentration, the split between recurring and one-off income, the working-capital cycle, and every adjustment made to arrive at normalised EBITDA.
A portion of the purchase price in an acquisition that is payable at a future date, either as a fixed amount or contingent on the achievement of specified milestones. Deferred consideration must be recognised at fair value at the acquisition date under IFRS 3 and ASC 805, with subsequent changes in value typically recorded through profit or loss.
The difference between current assets and current liabilities, representing the short-term liquidity available to fund day-to-day operations. Effective working capital management ensures a business can meet its obligations while optimising cash flow for growth investment.
Further Reading
What Is My Business Worth to a Buyer?
How normalised EBITDA sets the base your multiple is applied to.
Read more →Related FAQ
What is my business worth to a buyer?
A buyer applies a multiple to your normalised earnings and sets that multiple on the quality of your intangible assets — brand, customers, technology, processes and people — not on last year's profit alone.
Read full answer →What is normalised EBITDA and why do buyers adjust it?
Normalised EBITDA restates reported earnings to remove one-off items and owner-specific costs, showing the sustainable earning power a buyer would inherit. Buyers adjust it because the multiple is applied to this figure, so it sets the price.
Read full answer →How do I prepare my business for sale?
Get the numbers clean and normalised, tidy contracts and intellectual property, reduce founder dependency, and prepare a vendor due diligence pack and data room — all framed around what a buyer's diligence will test.
Read full answer →Put this knowledge to work
Use Opagio's free tools to measure and grow the intangible assets that drive your business value.