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Key takeaways
- Start from the stated net-income amount and period.
- Label further adjustments separately and support them with records.
- Build a separate cash plan for debt, taxes, capital and collections.
What does the definition include?
The SEC’s explanation uses net income as the earnings basis and distinguishes calculations with further adjustments. That source addresses securities reporting; this definition does not impose those filing requirements on every private seller. (Source: SEC questions 103.01–103.02)
Why it matters in a senior care sale
A buyer needs a consistent earnings basis when comparing businesses. Read the period, included entities and treatment of staff, rent and central costs. The valuation comparison explains how this differs from SDE and EBITDAR. QoE examines the evidence behind the earnings presentation.
A fictional calculation
Assume a complete net-income statement for one business, with rent and staff costs already included. Every amount below is invented; there are no ownership interests requiring a separate allocation.
| Fictional bridge | Amount |
|---|---|
| Net income | $90,000 |
| Interest expense | $25,000 |
| Income tax expense | $15,000 |
| Depreciation | $20,000 |
| Amortization | $10,000 |
| EBITDA | $160,000 |
A separate proposed $12,000 earnings adjustment would produce $172,000 of adjusted EBITDA if supported. It does not change the original definition or automatically remove owner replacement cost.
Keep the cash calculation separate
Assume the $25,000 interest expense and $15,000 tax expense are paid in cash during the period. Start with $160,000 EBITDA, then deduct those payments, $40,000 debt principal, $30,000 capital spending and $20,000 of added working capital. The remaining $30,000 is a simplified cash result. No other timing differences or cash uses are assumed.
Depreciation and amortization are not deducted again in that bridge. The working-capital guide and financial-statements guide help distinguish earnings, collections and cash uses. The platform guide applies those distinctions to an integration budget.
Frequently asked questions
Is EBITDA the same as net income?
No. EBITDA reverses the defined interest, income tax, depreciation and amortization amounts from net income. The example starts with $90,000 of net income and reaches $160,000 of EBITDA. Both figures retain their own meaning and should be clearly labeled.
Can owner pay always be added back to EBITDA?
No. Owner compensation is not one of the four specified EBITDA adjustments. Evaluate the work performed, any proposed separate adjustment and the cost of replacing needed duties. A buyer still needs the business to perform that work after closing.
Is adjusted EBITDA a different measure?
Yes. It includes further stated changes. In the example, a proposed $12,000 adjustment produces $172,000 of adjusted EBITDA only if the adjustment is supported. Keep the original EBITDA visible and identify the record and reason for each additional change.
Does EBITDA show cash available for debt repayment?
Not by itself. Cash interest, taxes, principal payments, capital spending, working-capital changes and other timing effects may still matter. The separate fictional cash example leaves $30,000 after its listed uses. Actual receipts and obligations require their own forecast.
Sources
Sources are dated to distinguish current guidance from earlier publications. They support the identified facts; the transaction questions and examples are educational analysis.
- SEC: non-GAAP financial measures interpretations (2022). Retrieved September 6, 2026.
- SBA: manage your business (2026 retrieval). Retrieved September 6, 2026.
- Pennant: second quarter 2026 results and reconciliations (August 5, 2026; quarter ended June 30, 2026). Retrieved September 7, 2026.