A walk-through on how to calculate EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) for Steel Dynamics. <br />By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" <br />EBITDA is important NOT because it is a good "proxy for cash flow" - as is commonly claimed by financiers and some academic sources - but rather because it lets you more easily compare different companies' valuations, especially companies with different capital structures, tax rates, and depreciation policies. <br /> <br />To calculate it, you start with Operating Income (EBIT) on the Income Statement, and then add back Depreciation & Amortization (D&A) on the Cash Flow Statement, and then any other one-time or non-recurring charges you find on the financial statements or in the Notes to the Financial Statements. <br /> <br />To qualify as an add-back, an item MUST: <br /> <br />1. Actually be non-recurring. A Restructuring Charge that has recurred every year over the past 10 years is NOT "non-recurring" even if the company claims it's just temporary. <br /> <br />2. Impact Operating Income. You would never add back something like Deferred Income Taxes because they're "below the line" and only impact the company's Income Taxes, not its Operating Income. <br /> <br />Sometimes, items could go either way; for example, some banks and groups add back Stock-Based Compensation while others do not. We keep things as simple as possible and ONLY add back charges that are truly non-recurring and ones that actually impact Operating Income in this example. <br /> <br />You'll learn how to tell whether or not an item meets those criteria above, even when it's a tricky case such as deciding if Gains / (Losses) truly affect the Operating Income line. <br /> <br />WANT MORE FREE FINANCIAL MODELLING TUTORIALS? Receive a Free 3-Part Tutorial on How to Build Your First Merger Model based on the $16B United / Goodrich deal. Visit: www.breakingintowallstreet.com/biws <br /> <br />http://www.mergersandinquisitions.com/
