It appears as if he's just not walking the income statement in the normal order. In other words - he's likely rolling those interest and D&A into the 'total expenses' to show you net income, but then to show you EBITDA he's adding them back in. I would definitely ask for clarification!

It's confusing because Total Expenses should read Other Expenses. Other Expenses would include interest, depreciation and amortization among other items. Then he's just extracting interest and D&A to add it back to net income to get to EBITDA.

I would imagine the Net Ordinary Income is what's being reported on their taxes then adding back interest and depreciation .

What Josh said --> NOI includes everything, interest and D&A shown below that are essentially "memo" items

The calculation appears to correctly determine EBITDA

The calculation is correct. EBITDA can be calculated 2 ways: 1) starting with Net Income or 2) with Operating Income. They would differ if there are one-time adjustments that feed through to Net Income. For instance, a one-time gain due to an asset sale would inflate the first method but not the second method.

This looks typical. I'm looking for clarification on how his SDE is lower than EBITDA. Hopefully there are some comments there as to the negative adjustment. Which is not unusual, I just don't have the detail.

I think you should definitely request the details/excel behind this to confirm what accounts are included where (including how much of Rent is being allocated to COGS vs. OpEx) and the details of the SDEs (to make sure they are actually SDEs and not business expenses). To me as shown, operating expenses look light (of course maybe that makes sense with the business you are looking at), but some quick math below:

Total Operating Expenses Shown $666,500
Less: SDE (assuming all hitting OpEx) $(341,610)
Less: Rent (assuming all hitting OpEx) $(117,340)
Less: Interest (Added Back) $(13,250)
Less: D&A (Added Back) $(60,000)
Other Operating Expenses (Incl. Headcount) $134,300

I'm probably missing something but it seems very low to me as it should include all other expenses (any other opex headcount/business insurance/IT costs/marketing/etc.) and for any business you are going to try to grow it doesn't seem like there is much there for you to start with
(again may be right depending on business you are looking at).

Ordinary income sounds like a tax concept to me

Agree with Mark Kuether, and the other comments above. The EBITDA looks correct, you can go further down the line beyond Ordinary Income, but then you just end up adding back one-time expenses. What doesn't look right is the SDE. At its heart the difference between SDE and EBITDA is a normal owner's salary or the salary of a GM that can run the business for an absentee owner. Thus SDE should be greater than EBITDA by an owner's normalized or GM salary.

I have looked at a few small deals like this. I would not add the rental income back to EBITDA. I would value the real estate separately using a cap rate for comps and $/sq ft for comps.

I've seen this trick too... and I have a system for handling it - which I can go over with you in about 5 min. Let me know if you want me to walk through it with you - we can do a quick zoom call ( too long to type out). Rick Stark. [redacted]

This methodology of calculating EBITDA is meant to show a more "normalized" earnings approach by not including expenses shown below NOI (which are typically added-back anyways) - which is also theoretically why finance professionals use EBITDA in the first place i.e. to get a closer proxy to cash flow - However, I would still ask for a detailed line-by-line income statement because sometimes brokers like to classify certain expenses as non-recurring or extraordinary when they really are not.

This appears to me to be the EBITDA. The confusion is that they are starting with NOI and working in reverse to show you EBITDA by adding back the Interest and D&A expenses. NOI normally would include taxes, interest and depreciation. But as others have said, you would always confirm this in your due-diligence.

Net Ordinary Income typically refers to pre-tax profit in my experience, Adding back interest and D&A gets you EBITDA.

Echoing what David and Dominik have said, because net operating income includes interest and D&A, you arrive at EBITDA reversing those charges through this calculation.