The Wild West of EBITDA Adjustments

👋 Hi, it’s CJ Gustafson and welcome to Mostly Metrics, my weekly newsletter where I unpack how the world’s best CFOs and business experts use metrics to make better decisions.

EBITDA—Earnings Before Interest, Taxes, Depreciation, and Amortization—is making a comeback as one of the most scrutinized metrics in finance, driven in part by a rise in IPO and M&A transaction volume. And with this resurgence, we’re seeing a wave of increasingly aggressive EBITDA adjustments that warrant a closer look.

In fact, it feels like if you just add the modifier “Adjusted” to EBITDA you can just do things.

Don’t believe me?

Here are two recent eyebrow-raising examples from S-1 filings:

Klarna reported $181M in Adjusted Operating Profit in 2024, despite a GAAP operating loss of -$121M. The trick? They excluded nearly half a billion dollars in consumer credit losses—the core risk of being a BNPL lender.

They also wrote off $82M in depreciation and impairments and removed restructuring costs, calling them “one-time.” But when cost-cutting happens every year, is it really “one-time”? They’ve been trimming headcount and offboarding software vendors for the past three years.

CoreWeave claims a sky-high 64% Adjusted EBITDA margin—but on a GAAP basis, they’re running at a -45% loss.

The playbook? Strip out $360M in interest on GPU-backed debt, extend useful life depreciation on chips from 5 to 6 years (lowering reported costs by $20M), and ignore $863M in AI hardware depreciation. Yikes.

The result? A financial profile that looks like it rips—until you dig into what’s missing.

For those of us who spend time with CFOs and investors, these stories offer a fascinating glimpse into the evolving dark arts of financial reporting.

Continue reading for a deep dive into the history and application of EBITDA, as well as the craziest adjustments (and memes) I could find.

EBITDA adjustments are intended to normalize a company’s earnings by excluding costs that are non-recurring, unusual, or unrelated to the core operations of the business. In theory, these adjustments provide a cleaner view of a company’s sustainable operating performance, which is particularly useful for potential buyers or investors. It also allows investors to compare companies “in a vacuum” regardless of choices in capital structure (debt) and taxes (where the company operates).

However, in practice, the definition of an “adjustment” has been stretched to its limits. It’s no longer just about removing the noise—it’s about changing the plot. Completely.

In the 1970s, John Malone took the helm of a scrappy cable company called TCI and faced a brutal reality—his business required massive upfront investments in network infrastructure, making traditional profit metrics look awful.

To convince investors that cable was a goldmine waiting to happen, he championed EBITDA, a cleaner way to show the true earning power of subscription-based businesses without the drag of depreciation.

By focusing on cash flow before accounting complexities, Malone was able to raise debt aggressively, reinvest in growth, and turn TCI into a media empire. His approach caught on like wildfire, influencing not just telecom but also private equity, where EBITDA became the go-to yardstick for leveraged buyouts.

Today, Malone’s legacy lives on, as not only telecom giants and media moguls use EBITDA to justify bold expansion and heavy leverage, but also less capex heavy companies… like pureplay software firms who sling bites, not bits.

We covered Klarna and CoreWeave as they enter the public sphere. Here are some of the most aggressive and creative adjustments I’ve encountered in the private sector for PE-backed companies recently:

Adjustments for restructuring costs, such as layoffs, office closures, or leadership changes, are common and often justified.

But I’ve seen cases where recurring operational inefficiencies are lumped into this category. One PE-backed company even included the write-off of a failed expansion into a new market as a restructuring cost—despite repeating the same “one-time” mistake multiple times over a few years. When (recurring) poor strategic choices are labeled as “restructuring,” it raises the question: are one time stupid choices the same thing as one time costs?

A particularly bold move is to include “future cost savings” as an adjustment. For example, a retail chain that closed 10% of its stores adjusted EBITDA TODAY to reflect the rent and overhead savings from these closures—even though many of the leases were still active and those costs hadn’t actually been eliminated. This type of adjustment effectively assumes savings that may or may not materialize.

COVID-19 opened the floodgates for creative adjustments, and some companies are still riding that wave. Cleaning and PPE costs? Reasonable.

Adjustments for "lost revenue opportunities due to reduced customer foot traffic”? A bit of a stretch.

In one case, a PE-owned hospitality business adjusted for "pent-up demand," claiming revenue they believed should have materialized if not for the pandemic. While it’s one thing to account for unique circumstances, it’s another to enter the realm of speculation.

Marketing campaigns are another favorite adjustment. A retail company justified adding back the full cost of a major marketing push, arguing it was a “one-time” initiative. Yet their historical performance revealed a new “one-time” campaign every winter during the holiday season push. If a pattern repeats with such regularity, can it truly be considered non-recurring?

Legal fees and settlements are classic adjustments, often justified as non-operational expenses. But I’ve seen companies add back legal costs stemming from long-term compliance failures.

For instance, a company that underpaid employees for years adjusted for the resulting legal expenses, framing them as “one-time” charges. Such adjustments conveniently ignore the root cause—poor internal controls—which could indicate deeper operational risks.

For investors and potential acquirers, EBITDA adjustments can either clarify or distort the financial health of a business. While some adjustments are valid and necessary, others are designed to paint a rosier picture than reality justifies.

For example, an overly adjusted EBITDA might:

When encountering EBITDA adjustments, consider asking:

EBITDA adjustments tell a story—but you have to decide whether it’s a work of fiction or non-fiction. For PE-backed companies in particular, where financial engineering often meets operational reality, the line between aggressive adjustments and outright misrepresentation can be really thin.

As M&A and IPO activity continues to heat up, so too will the creativity behind these adjustments. The challenge for CFOs, investors, and other stakeholders is to read between the lines and ensure that the numbers truly reflect the underlying business performance—warts and all.