When calculating Adjusted EBITDA, some of my companies add back Stock Based Comp expense from the cash flow statement, and others don’t. Do you think this is a legitimate add-back?
I guess I should just be consistent across all companies.
Maybe I should just clarify that this Adjusted EBITDA would be used in a EV/EBITDA valuation.
If you bought a company and removed the option plan would you lose management? If yes, I think you need to determine how much cash it would take to replace the stock-based compensation plan. The difference between these two figures would be your EBITDA adjustment.
I think Chad’s explanation is a solid one. Stock based compensation is as real and recurring expense as normal compensation. Adding it back to EBITDA smacks of an attempt to mislead.
to my disliking, we add back stock based comp as it is non cash and EBITDA “normally” tries to capture the cash flow of a business (which I disagree with in theory)… I have my own way of valuing stock based compensation, but it normally doesn’t change the picture materially…i normally consider stuff like this to be like slippage or stolen goods…nothing much you can do about it…however, for smaller firms, i definitely let this slide a lot more…