EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is one of the most widely used aggregates in business valuation. However, it can be misleading if certain items are not restated. This is particularly true of leasing contracts, and more generally of rental contracts with multi-year commitments.
These accounting items artificially modify EBITDA, as they transform a financing expense (equivalent to debt) into an operating expense. An error of analysis here can lead to an over- or undervaluation of several hundred thousand euros.
1. What the accounts say: where the distortion lies
Under French accounting standards (PCG), lease payments are recorded as external expenses (account 612) and therefore deducted from EBITDA.
However, these rents actually correspond to two elements:
- a financial charge (such as interest),
- and a depreciation charge (corresponding to economic wear and tear on the leased asset).
By not reprocessing this pattern, the company mechanically reduces its EBITDA, even though the expense can be assimilated to a debt repayment. This is a major bias, whichIFRS 16 (international standards) has corrected for listed groups and small and medium-sized companies.
2. Understanding reprocessing: a logic of financial transparency
Reprocessing consists of :
- Add lease payments to EBITDA (as they are incorrectly shown as an operating expense).
- Then deduct the theoretical depreciation of the asset financed.
- Isolate the interest charge to distinguish between the cost of use and the cost of financing.
➤ Example:
An SME leases a machine:
- Annual rent: €100,000
- Contract duration: 5 years
- Surrender value: €10,000
- Implicit rate: 3%.
Current accounting (not restated):
- 100 k€ in expenses → EBITDA is reduced by 100 k€.
Restatement (financial method):
- Straight-line depreciation = (€100,000 × 5 years + €10,000) / 5 = €110,000 / 5 = €22,000 / year
- Interest = approx. €3,000 / year (based on declining annuity)
- The remaining €75,000 is treated as an endowment.
- Restated EBITDA = Accounting EBITDA + €100,000 (rent)
- Economic EBITDA = Restated EBITDA - €22,000 (amortization) = +€78,000
This restatement reveals a higher level of performance of almost €80,000 per year, or €400,000 more in value with a multiple of 5×.
3. Leasing: debt-like commitments
Another issue is that these contracts generate off-balance sheet commitments, which do not appear in financial liabilities (account 16). For an acquirer, this is a hidden risk.
Reprocessing enables :
- Reconstitute an equivalent debt, by discounting future rents (DCF method or present value of remaining rents),
- Add to net debt,
- And correct the bridge between Enterprise Value (EV) and Equity Value.
➤ Example:
Remaining rents over 4 years = €400,000
Discount rate = 4% → economic debt ≈ €375,000
To be included in economic liabilities opposite restated EBITDA.
4. In valuation: restated EBITDA + restated debt = transparency
In any valuation based on anEBITDA multiple (comparables method), it is imperative :
- or restate EBITDA by adding rent (EBITDAR),
- or leave EBITDA unchanged, but apply multiples from a panel of non-rental companies.
Failure to do so is like comparing apples and oranges: a company that rents everything appears to perform less well than one that has bought... even though the actual cash flow is identical.
Hence the growing interest of the EBITDAR = EBITDA + Rent indicator in modern financial analysis.
5. What does XVAL do?
At XVAL, our valuations systematically include :
- Identification of hidden financial leases, factoring contracts, etc.
- Economic reconstitution of the underlying asset (useful life, residual value).
- Restatement of EBITDA and net debt.
- Clear justification in the valuation report: accounting restatements, corrected cash flows, VE/Equity bridge.
Our aim: to produce a clear, defensible and optimized valuation, particularly in the event of a sale, the arrival of an investor or a dispute.
Conclusion EBITDA restatement and valuation
Restating lease payments is not a technical luxury: it's a requirement of rigor and transparency. Done incorrectly, it can undervalue a company by 20-30%, or artificially inflate its profitability. Done properly, it guarantees a valuation based on real cash flows, not on accounting appearances.
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