Is "cost of equipment finance" a legitimate add back to get to EBITDA?

searcher profile

October 02, 2024

by a searcher from Narsee Monjee Institute of Management Studies in Toronto, ON, Canada

Evaluating a deal for a Niche Logistics Company with $5M Revenue and $1.2M Adj. EBITDA. The business has a lot of assets ($3M+) in trucks and trailers-about $1M in pending loan. In the P&L Summary, there is a substantial add back tied to "Cost of Equipment Financing" and the footnote reads- Cost of financing included in ""Rental " expenses have been added back to reflect profitability if units owned free and clear." Is this a legitimate add back?

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
I would concur with most of the above. It can be added back if you are getting that equipment and the expense will go away at closing. However, you will need to be sure to include in your analysis an adjustment for future CAPEX needs, assuming the business will have them, to account for replacing that equipment or buying additional equipment needed by the business in the future. If you need help with the analysis, we are always willing to look at opportunities and provide a free analysis from a financing perspective. You can reach me here or directly at redacted
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Reply by an investor
from The University of Chicago in Chicago, IL, USA
It is an addback only if the equip / vehicles are included in the assets conveyed to the buyer at closing with all lease finalization payments (buyout payments) made in full at closing by the seller. Should be same treatment as a co-owned piece of eq. that has an o/s bank note associated with it (buyer gets assets and seller pays off the note at closing). If the equipment is to remain leased (a post-closing operating lease) or if it is not included with the assets conveyed to the buyer - it is not an addback.
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