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EBITDA adjustment related to FX

ebitda fx

When calculating normalized EBITDA for bank covenants or valuation, do you exclude FX gains or losses? Situation: US corporate sells in Mexico and Canada and sales and receivables are denominated in local currency. Receivables are later settled in local currency. But when monthly financial statements are prepared, the non-USD line items are translated and a gain or loss results. The starting point for the conversation is this a non-cash expense and therefore added back to EBITDA. The argument denying the add-back is that the FX exposure exists and its a cost of doing business.

Answers

Anonymous
(SVP & CFO) |

Our note explicitly allows for the fx EBIDTA adjustment in the situation that you describe.

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Proformative offers 450+ online business courses with free CPE, many on Accounting and FX, such as:

"Unraveling the Mystery of FX Gain or Loss Line"

Good luck!

Sarah

Anonymous
(Business Analyst) |

As you rightly mentioned "...its a cost of doing business". EBITDA is suppose to include revenue earned out of the business carried out by the company for which it was formed. If FX is a part of the main business, the company deals in, then such is to be included in EBITDA whereas if it is a mere exchange gain/loss occurring but not forming the part of main business then such is not to be considered while calculating EBITDA.

David Matiella
Title: CFO
Company: Innovative Business Concepts
(CFO, Innovative Business Concepts) |

As you mention, you are the exporter and billing in a foreign currency; thus, you are assuming the risk of currency fluctuations as part of your commercial/sales agreements. Such variations is a cost or gain of your doing business in these countries and should be booked to to P&L.

David OBrien
Title: Treasury Consultant
Company: EE Treasury
(Treasury Consultant, EE Treasury) |

Dear Director of Finance:

FX should be included in the calculation.

Kutawa Chamunda
Title: Investment Analyst
Company: African Life Financial Services
(Investment Analyst, African Life Financial Services) |

I don't have an answer but more a follow-on question. What if the corporation does business primarily in the local market but took on USD debt for a particular transaction, and is now experiencing FX losses/gains on that debt? Should that be included in the EBITDA calculation?

John Herndon
Title: Senior Consultant
Company: NOWCFO
(Senior Consultant, NOWCFO) |

EBITDA is an 'above the line measure' whereas Unrealized/Realized Gain for Loss on Foreign Currency is a below the line measure under US GAAP. As such, the FX is NOT included in the determination of EBITDA.

Syed Najmul Hassan
Title: Accounting System Developer & Solution P..
Company: Adroit Business Consulting
LinkedIn Profile
(Accounting System Developer & Solution Provider, Adroit Business Consulting) |

FX gain/losses perhaphs not the part of EBITDA and it should be added back/subtracted to arrive at the right EBITDA figure.Even if it is directly attributale to "cost of doing business" I think depreciation and amortization treatment is less relevant under the scnario but "intetest exclusion provides link with why to exclude FX gain loss

Patrick Malaza
Title: CFO
Company: Scaw Metal Group
(CFO, Scaw Metal Group) |

I also think fx gain/loss is a finance costs like interest and thus below the line and therefore should be excluded from EBITDA.

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