4.6 EBIT and EBITDA, and Adjusted EBIT and EBITDA
As discussed in Chapter 3, EBIT, EBITDA, and adjusted EBIT and EBITDA may be presented
as a performance measure, a liquidity measure, or both in some cases. If presented
as a liquidity measure, EBIT and EBITDA are, as noted above, specifically exempt
from the liquidity measure prohibition; however, they are still considered non-GAAP
financial measures and therefore must include all of the required non-GAAP
disclosures.
As discussed in Section 3.5, any adjustments to net income beyond those described in the
traditional definition of EBIT or EBITDA create an “adjusted” measure, which is also
considered a non-GAAP measure. Therefore, to avoid investor confusion, a registrant
should not characterize or label the non-GAAP measure as EBIT or EBITDA if the
measure does not meet these traditional definitions. Instead, the registrant should
distinguish the measure from EBIT or EBITDA by using a title such as “adjusted
EBITDA.” Any additional adjustments to derive adjusted EBITDA are subject to the
non-GAAP liquidity and performance measure prohibitions in Item 10 (with the
exception of measures regarding material covenants to debt agreements; see Section 4.14 for a discussion of
credit agreement covenant disclosures).
Also, C&DI
Question 103.02 notes that EBIT or EBITDA should not be presented on
a per-share basis. The C&DI does not discuss the presentation of earnings per
share on adjusted EBIT or adjusted EBITDA. The determination of whether they are
acceptable may depend on the nature of the adjustments and whether the measure is,
in substance, a liquidity measure.
See Section
3.5 for additional discussion of EBIT, EBITDA, and adjusted EBIT and
EBITDA.