Adding assets recently purchased as an addback, reasonable or unreasonable?

by a searcher

2 years ago

Speaking to a trucking company.  They recently bought a few trucks, in cash, worth $500k total.  So they added back that amount to an EBITDA of $500k which equates to an overall $1 million in SDE for the current TTM.  How should one think about modeling this into a valuation?  To me, if the value of the assets (trucks) are still worth the $500k and there are potential depreciation advantages in the near future, it may be fair to model in the $500k.   I want to make sure I'm being fair to the seller but also looking out for my best interests.   Thoughts welcomed?

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searcher from California State Polytechnic University - Pomona

Depends, did they someone expense $500k on the PL? If not, then there's nothing to add back.

1 year ago | like reply | 0 likes

searcher from Texas Christian University - Neeley School of Business

Definitely addback - large expenditures (i.e. trucks) w/ useful life of over a year should be capitalized on the Balance Sheet rather than expensed through the P&L. Depreciation is expensed through the P&L over the useful life of the truck. However, depreciation is a definitional addback to calculate EBITDA. That said, capex heavy businesses should be considered when determining a market value multiple. Recognize what average annual capex will be to determine an accurate financial outlook of the company and calculate an "effective multiple"

2 years ago | like reply | 0 likes

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