Definition: These are made to the
to determine the true
of the company.
See Also: Normalizing, recasting, SDE, EBITDA .
Tips: Adjustments are made by adding back discretionary (non-essential to operations) expenses to net pretax operating profit to estimate a company's economic cash flow , versus cash flow produced for tax purposes. Most business owners manage their small businesses by minimizing taxable income by deducting expenses not directly related to the business’s operations. It may become necessary to adjust the financial statements by “adding back” these expenses in order to show potential owners the actual cash flow available. Adjusting the financials allows one to compare a business to other businesses using seller’s discretionary earnings (SDE) or EBITDA.