Bad debts as an add-back when calculation EBITDA & SDE?

by a searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School

2 years ago

Hello community, 

Any thoughts on bad debts that are added back to the P&L by sellers to calculate EBITDA and SDE?  I believe that's not right since bad debts do reflect an operational reality of the business.  What have you seen on the market?  What is normally accepted? 

Thanks 

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11 comments

lender from Eastern Illinois University

From a lending perspective, I think it depends on when the bad debt was incurred. I am working on a deal now where there was a large bad debt item in 2020 but upon review that bad debt revolves the right off of some A/R dating back to 2014 that the company finally wrote off in###-###-#### In that case not only the client but also the lenders are comfortable because it was an adjustment for something that happened one-time in the past. So if it is truly one-time and can be explained, we can typically get lender's to add it back to cash flow. However, if the company consistently has bad debt year over year, then it cannot be added back. If you need advice on the specific situation you are looking at from a lending perspective, feel free to reach out at --@----.com Good luck.

2 years ago | like reply | 0 likes

intermediary from New York University - Leonard N. Stern School of Business

Hi, that includes working capital and all operative assets. EV/EBITDA doesn't include cash.

2 years ago | like reply | 0 likes

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