Series 79 practice questionhardFinancial Statement Analysis
A company reports a one-time gain from the sale of a division, inflating its net income. When calculating adjusted EBITDA for valuation, how should this gain be treated?
- AAmortize it over several years
- BIgnore it if it is less than 1% of sales
- CAdd it back only if the gain appears on the cash flow statement
- DExclude it from EBITDA as a non-recurring item✓ Correct answer
Explanation
Why D — Exclude it from EBITDA as a non-recurring item
Non-recurring gains like the sale of a division are excluded to present a normalized EBITDA. Failing to adjust for one-offs distorts true operating performance and leads to overvaluation.
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