Addbacks

Definition

Profit and Loss Statement expense items that are added back to the business net pretax operating profit in order to arrive at an accurate estimate of the business profitability.

What It Means

Most closely held businesses are run by their owners to minimize taxable income. To determine the actual profitability of such businesses, the financial statements need to be adjusted. Typical adjustments or addbacks to the include:

  • Owner’s compensation and benefits in excess of market.
  • Depreciation and amortization.
  • Interest expense.
  • Extraordinary or one-time expense items.

See Also