Unadjusted EBITDA for CDW Corp

Unadjusted EBITDA for CDW is calculated as follows:

Earnings Before Taxes [ 1.435 B ]
(+) Net Interest Expenses [ 214.5 M ]
(+) Non Operating Expenses [ 1.4 M ]
(+) Depreciation and Amortization [ 275.3 M ]

(=) Unadjusted EBITDA [ 1.927 B ]

Unadjusted EBITDA is defined as Earnings before Interest, Taxes, Depreciation and Amortization. This metric does not adjust for unusual items.

It is a commonly used metric in valuation as a proxy for operating profitability. EBITDA gives us a clearer picture of profitability when comparing companies with different capital structures. So why is it useful to use EBITDA and ignore interest, taxes, depreciation, and amortization when comparing the performance of different companies?

Difference in Interest Expense

Two companies that are otherwise similar may have different levels of debt. The company with higher debt will likely have higher interest expense and lower Net Income. Since EBITDA ignores interest expense, it is not directly affected by management’s financing decisions.

Difference in Taxes

The amount of a tax a company pays each year is determined by a wide range of factors that does not always reflect the profitability of the company since the taxes a company is subject to reflects factors like political jurisdictions, past loss carryforwards, research and development tax credits, and depreciation on capital assets to name a few.

Depreciation and Amortization

Two companies that are otherwise similar may purchase capital assets (machines, vehicles, buildings, etc.) at different times which can impact depreciation. Ignoring depreciation and amortization allows us to normalize income for these differences.

Unadjusted EBITDA is most useful in ratios to benchmark profitability, growth, credit risk, and relative valution. Popular Unadjusted EBITDA benchmark metrics include unadjusted ebitda margin, ebitda minus capex margin, unadjusted ebitda growth, and ev / ebitda.