2 Excel templates:

1) NVIDIA DCF Valuation model

Wall Street firms raised their price targets on NVIDIA stock after the company’s beat-and-raise quarterly report. Use this template to investigate more and discover real opportunities.

​Click here to get your Excel template​​​​​

The model can be adjusted very easily for any company. Later in this issue, I have visual support for this model as well.

The finance and sales sectors are always in some sort of “cold war” or competition.

The sales team often sees us in finance as merely a service function and doesn’t understand how we add value to business transactions.

Therefore, it’s important to have strong skills in analyzing customer sales and channels so that we can always demonstrate our expertise to our colleagues.

That’s why I created this model, which shows how we acquire customers, what the conversion rates are, and identifies areas for improvement.

​​​​Click here to get your Excel template​​​​​​

This model, with small adjustments, can be used for many industries.

Here are 2 Infographics:

1) Debt vs Equity Financing

​​Get this infographic on a high-resolution PDF​​​​​​​​​​

2) Accounting equation in building a financial model

​Get this infographic on a high-resolution PDF​​​​​​​​​​​

Here’s today’s “How to” guide:​​​​

How to do EBITDA adjustments and why it matters

Understanding the need for EBITDA adjustments is vital for investors, analysts, and other stakeholders.

A raw EBITDA figure might not always reflect the true operational earning power of a company. By making thoughtful adjustments, one can derive an adjusted EBITDA that offers a more accurate and comparable metric for analysis.

EBITDA might include non-operating income or expenses.

As EBITDA aims to measure operational profitability, these non-core business items can distort the true picture and need to be excluded.

Companies sometimes have one-off events, such as lawsuit settlements, restructuring costs, or gains from the sale of an asset.

Companies might have different accounting treatments for certain items, making EBITDA comparisons across firms problematic.

What are common adjustments types?

The adjustments process starts with addressing the potential adjustment types.

The most required step is analyzing a company’s books to identify the adjustments that require not only industry and business understanding, but application of reviewing techniques and tools.

After that we need to build a model for EBITDA adjustments, and understand the EBITDA adjustments levels like management adjusted EBITDA and diligence adjusted EBITDA.

  • Non operating items adjustment

These adjustments should be made to provide a clearer picture of the company’s operating performance without the influence of non-recurring or non-operational factors.

  • One-time adjustments

These EBITDA adjustments refer to unique, one time and exceptional events or expenses that are not expected to impact the company’s ongoing operations. Examples: Restructuring costs, Legal settlements etc.

  • Asset impairment

This adjustment is used to provide a clearer view of the company’s operating performance by removing the impact of the impairment costs, which may be a consequence of non-operating effects.

  • Write offs

These costs could be typical for ongoing and recurring operations. For example it is normal to have some cost of shortages, scrap… Still in case extraordinary costs are identified, such write offs should be adjusted from EBITDA.

  • Excess owner compensation

The adjustment made to remove or adjust for compensation paid to owners or key executives that exceeds the market rate for similar roles in comparable companies. It is a financial adjustment made to reflect a more accurate measure of the company’s operating performance by removing the impact of excessive owner compensation.

  • Share based compensation

They are non-cash charges that do not directly affect the company’s operating cash flow. Adding back these expenses provides a clearer view of the company’s operating performance.

  • GAAP adjustments

They are not related only to EBITDA but on financials overall. For example if we observed maintenance costs should be capitalized due to the GAAP, such effects result in lower costs and higher EBITDA.

Management Adjusted EBITDA

Management Adjusted EBITDA refers to the EBITDA figure that has been modified by the company’s management to exclude items they believe are not representative of the core operating performance.

Often, management feels that certain one-off or non-recurring items, whether they be expenses or revenues, distort the EBITDA and hence, do not present an accurate picture of the company’s ongoing operational profitability.

By making these adjustments, management aims to provide investors and other stakeholders with a figure that they believe more accurately reflects the sustainable earning power of the business.

However, it’s crucial for those analyzing these figures to understand and critically assess the rationale behind the adjustments. While they can indeed offer a clearer picture of operations, they can also be manipulated to present results in a more favorable light.

Diligence Adjusted EBITDA

Diligence Adjusted EBITDA arises primarily in the context of mergers and acquisitions or investment due diligence processes.

When a potential investor or acquirer is examining a company’s financials, they might make their own adjustments to the reported EBITDA based on their findings during the due diligence process.

These adjustments are intended to reflect items that the acquiring party believes are essential to consider, which the management might not have accounted for. It provides the investor or acquirer with a version of EBITDA that they feel better represents the economic realities of the business, considering their perspective and future plans for the company.

This adjusted figure can significantly influence valuation, deal terms, and the overall decision to move forward with a transaction.