Module II· Multiples & Sector SpecificsAdvanced
Question
Which quality-of-earnings adjustments are especially sector-specific?
Answer
Sector-typical QoE adjustments:
- SaaS: customer-acquisition cost (CAC) — aggressive marketing burn overstates EBITDA.
- Machinery: long order lead times → revenue recognition (percentage-of-completion vs. completed-contract) distorts EBITDA.
- Pharma: R&D capitalization (IFRS) vs. expensing (US GAAP).
- Real estate: fair-value adjustments (IAS 40) are non-cash and are often wrongly left in EBITDA.
- Automotive: OEM working-capital programs (reverse factoring) hide net-debt-like positions.
- Banks: loan-loss provisions and reserve releases — manipulable, so normalize them.
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Pitch tip
In a pitch, add a sector-specific QoE footnote per comp ('Adjusted for $25m of R&D capitalization to harmonize with the target P&L') — it shows depth.