Normalised EBITDA
The exit-multiple terminal value is exit-year EBITDA times a multiple. A multiple applied to a distorted EBITDA produces a distorted terminal value. The bridge from reported EBITDA to normalised EBITDA is therefore as important as the multiple itself.
Five categories that recur in quality-of-earnings reports
Legal settlements, environmental remediation, regulatory fines, one-off litigation costs. Add back if genuinely non-recurring.
Transaction fees, severance, integration consulting, restructuring charges. Add back, but watch for recurring restructuring charges that are really business-as-usual cost discipline.
In private-company normalisations, owner salary above market and personal expenses (cars, travel) are added back. Charge a market salary for the role instead.
Stock-based compensation true-ups, pension settlements, asset writedowns. Treat each on the merits; do not blanket add-back stock-based compensation in a run-rate.
Income or expense classified as non-operating that is actually core (and vice versa). Re-cut the line and re-state EBITDA consistently across the explicit forecast.
Always-add-back is an analytical failure
The most common error in a sell-side or buy-side analyst's EBITDA bridge is to add back every line labelled one-off in the adjusted-EBITDA reconciliation provided by the company. Some of those one-offs recur. If restructuring charges have shown up in four of the last five years, they are recurring cost discipline, not one-offs.