Reported vs. adjusted EBITDA
Start with an explicit definition
EBITDA means earnings before interest, taxes, depreciation and amortization. It is a non-GAAP measure. SEC guidance calls for reconciling EBITDA presented as a performance measure to GAAP net income and distinguishes calculations with further adjustments as measures such as adjusted EBITDA. See SEC questions 103.01–103.02.
“Reported EBITDA” in this tool is the starting value you supply. The tool does not reconstruct it from a trial balance or verify its reconciliation. Keep that supporting schedule alongside your analysis. If the starting number already removes a cost, do not remove it again in the adjustment rows.
| Measure | Purpose in this workflow | What still needs definition |
|---|---|---|
| Reported EBITDA | The starting earnings measure. | Source accounts, period, entities and reconciliation. |
| Adjusted EBITDA | A specified view after signed normalization items. | Which items, supporting evidence and treatment. |
| Covenant EBITDA | The amount computed under a credit agreement. | Executed definition, caps, baskets, time limits and pro forma provisions. |
| Cash flow | Actual or forecast movement of cash. | Working capital, investment, taxes, financing and payment timing. |
A bridge that moves in both directions
Consider this fictional scenario. Assume the starting $5 million has been reconciled, and a reviewer includes the following three items for this illustration. These assumptions are not an opinion that the adjustments would be appropriate in another setting.
| Bridge item | Signed amount | Scenario explanation |
|---|---|---|
| Reported EBITDA | $5,000,000 | Starting measure. |
| Isolated legal settlement expense | +$180,000 | Remove an expense, subject to the assumed review conclusion. |
| Gain on unused property sale | −$90,000 | Remove income recorded in the starting result. |
| Incremental replacement compensation | −$60,000 | Include a recurring cost above the historical compensation amount. |
| Adjusted EBITDA | $5,030,000 | Net accepted adjustments of +$30,000. |
A proposed $300,000 of procurement savings remains disputed. The primary result stays at $5.03 million. Including that proposal produces a separate $5.33 million sensitivity. It should not be described as realized savings. An annual audit fee is excluded from the adjustments, so the fee remains in the underlying expense base.
Try those choices in the interactive bridge. Marking an item accepted changes the arithmetic immediately; it does not make the item substantiated.
Why this does not calculate cash available
Imagine the accepted scenario stays at $5.03 million while customers pay more slowly and the business buys equipment. Those cash uses do not disappear because the earnings bridge is unchanged. Build a separate cash-flow view with payment timing and investment needs. Use LenderReporting for the broader liquidity and reporting context.
For public reporting, the SEC identifies EBITDA and adjusted EBITDA as non-GAAP measures. Their presentation requires attention to the applicable rules and context, not just an accurate spreadsheet. See the SEC Financial Reporting Manual, Topic 8.
Keep the contract calculation separate
For a covenant, create an agreement-specific schedule that quotes or references the executed definition and maps every line to it. Track caps and eligibility periods separately. A management normalization proposal should not flow automatically into that schedule.
Acquisition timing creates another distinction: historical earnings, combined pro forma presentation and expected post-integration results can cover different entities or periods. Label them explicitly and use ProFormaFinancials for a companion view of the acquisition perimeter. The evidence checklist helps preserve the audit trail for each proposal.
Sources and scope
- SEC, Non-GAAP Financial Measures interpretations — definitions and performance-measure reconciliation.
- SEC Financial Reporting Manual, Topic 8 — non-GAAP reporting framework.
The example and workflow are editorial guidance by Seth Sokoloff. All amounts are fictional. No covenant, reporting or transaction conclusion is implied. Reviewed October 11, 2026.
Put the review into practice
Build your own signed scenario, preserve disputed items and export the result.
Open the EBITDA bridge →