What is the actual useable EBITDA from a tax return

by a searcher from Oregon State University

1 month ago

How does one determine a REAL WORLD cash flow from the tax return. Is there a universal line item or formula to use from the 1120?

Assuming I'm using significant leverage, what is really there to support debt payments? Thus far I've heard from different sources to use M1-1, M1-10, or 1120 "taxable income" as the starting point for addbacks. Would love to get some alternative perspectives from the financiers on the forum.

For context, Im coming from the public markets, so have only ever used financial statements to do analysis. I'm trying to be able to understand how it translates to the tax returns that banks utilize.

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searcher from Oregon State University

After talking to a lot (too many) lenders the last week. I think the most common view is actually EBIDA (not a typo: EBITDA minus an assumed amount of taxes) as the number you can use to service debt and that underwriters will care about for coverage ratios. And then adjusted EBITDA for the valuation itself, with potential for providing material information if it initially comes back low.

1 month ago | like reply | 0 likes

intermediary from Iowa State University - College of Business

Initially, I use a company's internal P&Ls to model historical and future cash flows and to assess the viability of a business transaction. In an average deal, I'm only using tax returns as a means to verify and cross-check with the books, as well as some of the claimed add-backs. If I find discrepancies between the books and the tax returns, that's going to give some further insight into the deal and let me know additional diligence is required.

1 month ago | like reply | 0 likes

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