CFA Practice Question

There are 90 practice questions for this study session.

CFA Practice Question

When analyzing a firm's adjusted EBITDA, an analyst should examine the list of items that are excluded from net income. Which of the follow items is LEAST LIKELY to be examined?
A. Depreciation charge
B. Litigation costs
C. Loss/gain on debt extinguishments
Explanation: Taxes, interest costs, depreciation, and amortization are excluded from net income in the EBITDA calculation.

User Contributed Comments 5

User Comment
NOBA a very good question!
dquang225 If Depreciation is excluded. Isn't it MOST LIKELY to be examined??
ecapocas Yeah this is....

If you're an analyst, you will ALWAYS want to sanity check depreciation. It's a favorite place to hide earnings management (choice of depreciation method, etc) so you need to check and make sure it's consistent with industry and historical patterns.
lawlee I don't understand the logic of this answer, anyone please give your take!
litomalagg Well, i guess that because litigation costs and loss/gains on debt extinguishments are recognized in the income statement, they make parte of the "gross" EBITDA. Those transactions aren´t part of the normal operations of the company but involves cash to some extent, so when you´re analyzing an ADJUSTED EBITDA, you should analyze if those items will occur again at some point.
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