While EBITDA is a popular measure of profitability, companies increasingly use "adjusted EBITDA" to present profit and show higher EBITDA by excluding significant line items, most notably stock based compensation. In this course, we'll begin by explaining why EBITDA has become more popular than straight cash flow or GAAP profits. We'll build upon this to judge the appropriateness of the most common adjustments that companies now make to EBITDA. We'll use real company filings to examine the most common adjustments today's companies make to EBITDA to show: When using EBITDA is preferable to net income or cash flows, and when it isn't; The rationale for adding back stock based compensation, and how this can lead to overvaluation; The appropriate and inappropriate use of other common adjustments to EBITDA.
