Cash Adjusted EBITDA
What Is Cash Adjusted EBITDA and How Can You Use It?
Cash adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is a non-gaap (generally accepted accounting principles) measure of profitability that determines the value of a company similarly to EBITDA, but with the inclusion of year-over-year deferred revenue.
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What is Cash Adjusted EBITDA?
Cash adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is a non-gaap (generally accepted accounting principles) measure of profitability that determines the value of a company similarly to EBITDA, but with the inclusion of year-over-year deferred revenue.
Cash adjusted EBITDA, or cash EBITDA, can give a more accurate understanding of the financial performance of any company where customers often pay well in advance. This is common in SaaS, making cash adjusted EBITDA popular for companies looking to determine profitability compared to competitors.
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Key Components of Cash Adjusted EBITDA
Cash adjusted EBITDA is similar to EBITDA, requiring all the same components, with the addition of deferred payments. When determining cash adjusted EBITDA, you’ll need several key components:
- Net income
- Changes in working capital
- Operating expenses
- Interest/Interest expenses
- Taxes and tax expenses
- Depreciation
- Amortization expenses
- Non-cash expenses or item adjustments
- Year-over-year deferred revenue
- One-time or non-recurring expenses
Within the above categories you may have numerous granular items. For instance, owner expenses, rent, goodwill impairments, repairs or maintenance costs, and so on.
When You’ll Need Cash Adjusted EBITDA
Much like EBITDA, cash adjusted EBITDA is typically used by business owners during any kind of valuation process.
For instance, if you’re looking to sell your company, or you’re wanting to shore up investors, cash adjusted EBITDA can help you provide a clear image of company profitability, without the unique tax or depreciation situations that might bring down your value in other measurements.
Where cash adjusted EBITDA really differs from EBITDA is that it factors in deferred year-over-year revenue. This makes it especially useful if your company frequently takes payment for services ahead of time.
For instance, if you sign a client and receive payment, but then have a rollout or implementation period of several months, that’s still revenue your company will see. If you’re running company valuations and just signed customers, that’s still revenue worth including in your overall valuation, as it impacts your profitability for that year.
How to Calculate Cash Adjusted EBITDA
The process for cash adjusted EBITDA calculation is only slightly more complicated than calculating EBITDA, as it requires the addition of any adjustments and deferred revenue.
To find cash adjusted EBITDA, use the following formula:
Adjustments, or add-backs, can include a number of items, from non-recurring item purchases to stock-based compensation to deferred revenue. Go through your finances carefully and pull any items that added or detracted from your value, even if they’re a one-off, as these are vital to getting an accurate cash adjusted EBITDA.
Also worth noting, deferred revenue includes any payments received for services not yet rendered. Even if the payment just came through, it’s still worth including.
Example Calculation
Let’s pretend your company had $1 million in SaaS subscriptions so far in 2024, resulting in a net income of $400,000. On top of this, you had $50,000 in amortization related to trademarks on your product, along with a $100,000 donation from a backer. You also had a one-time licensing expense for a piece of software, which set you back $5,000. Lastly, in the past month, you had two new clients sign on for $10,000 each. Their software won’t be fully live until next quarter, as you have a long rollout process.
Given all of this information, your cash adjusted EBITDA would look like:
Cash adjusted EBITDA: $1 million + $400,000 + $50,000 + $100,000 – $5,000 + $10,000 + $10,000 = $1.565 million
If you want to compare your current cash adjusted EBITDA to previous years, simply use the above formula for the previous year. Then, subtract the previous year from your current year to get the difference.
Common Mistakes to Avoid
Cash adjusted EBITDA is fairly straightforward to calculate. But, there are still some mistakes that can occur.
Overinflating profitability
Cash adjusted EBITDA is forgiving, but being too liberal with your adjustments or add-backs can paint an unrealistic picture of your company’s profitability. This can result in overestimating your financial health, make it difficult to set fair market value for stock options, and mislead audiences when you’re seeking private equity.
For example, say you’re trying to appeal to investors for another round of startup funding. Omitting certain depreciation or taxes can happen, whether by accident or not. But, this can result in a more generous picture of profitability that’s not fair to investors or to your own projections.
Missing intercompany accounting
If your company happens to have sister entities or any form of intercompany accounting, this information should be included in your cash adjusted EBITDA if the finances are intermingled.
For instance, if your company is under the same umbrella as another company, and the two channel business into each other, or share any investments, that needs to go into your calculations as either an addition or detractor.
Missing deferred revenue
Again, one of the core benefits of cash adjusted EBITDA is that it includes revenue for services you haven’t rendered. Any revenue that comes in during the same period as your other metric, like net income at that point, must be included in your cash adjusted EBITDA if you want to give an accurate picture of your company’s profitability.
Utilizing Mosaic for Real-Time Cash Adjusted EBITDA
While the cash adjusted EBITDA formula itself is simple, gathering the appropriate data takes time. But, it doesn’t have to.
Mosaic’s comprehensive platform can streamline efforts to track cash adjusted EBITDA, providing access to real-time data across your disparate systems.
Features of Mosaic That Simplify Calculations
Mosaic supports data integrations with a number of major platforms, including:
Connect to hundreds of source systems instantly.
These integrations make it possible to view all your disparate datasets in one customizable dashboard on Mosaic.
From there, you can use Mosaic’s real-time analytics tools. These tools make it possible to quickly generate reports, overlay multiple metrics, automate more than 120 built-in metrics as well as user-made ones, and more.
Between the integrations, dashboards, and analysis tools, you can easily crunch your cash adjusted EBITDA, share it with the right people in a visual format, and always know how your company is performing
Benefits of Using Mosaic for Financial Metrics
For startups, especially those in SaaS, agility is everything. Competitors can emerge out of the blue and wow customers with unique features, while the market itself can shift on a dime.
By using Mosaic to track financial metrics, you can access real-time information, keep your team in the loop with customizable dashboards and reports, and make more informed decisions on the fly.
See how Mosaic can help your business become more agile. Request a demo today.
Cash Adjusted EBITDA FAQs
How often should cash adjusted EBITDA be calculated?
Typically, companies will calculate cash adjusted EBITDA every year to compare their year-over-year performance and profitability, and get a measure of a company’s financial growth. You can also run cash adjusted EBITDA whenever you’re seeking funding, need to appeal to investors, or want to compare your performance to emergent competitors.
What is the difference between cash adjusted EBITDA and adjusted EBITDA?
Are there industry-specific considerations for calculating cash adjusted EBITDA in SaaS?
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