Answers / Financial Due Diligence
How would you handle a situation where the target company's management proposes a large add-back to EBITDA, and what factors would you consider when evaluating the justification for the add-back?
An advanced Financial Due Diligence question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
I would carefully review the justification for the add-back, including the underlying documentation and support, to ensure it is reasonable and consistent with industry norms. I would consider factors such as the nature of the item, its frequency and magnitude, and its impact on the company's financial performance. Additionally, I would assess whether the add-back is one-time or recurring, and whether it is properly disclosed in the company's financial statements.
WHAT INTERVIEWERS LISTEN FOR
- ✓Review justification for add-back
- ✓Consider nature and frequency of item
- ✓Assess impact on financial performance
COMMON MISTAKES
- ✗Lack of transparency in add-back justification
- ✗Inconsistent or unreasonable add-backs
Reading isn't the same as answering under pressure.
Interviewers don't hand you the model answer — you deliver yours on a clock. Practice this and 1,000+ questions with AI feedback on every answer.
RELATED QUESTIONS
- Give me 3 examples of QoE adjustments.
- A company shows 30% revenue growth. What would you investigate?
- How would you handle a situation where management proposes a large add-back?
- How do you analyze revenue quality for a SaaS company?
- How do you handle a company with significant related-party transactions?
- What metrics would you use to assess the quality of earnings for a company with a high proportion of recurring revenue, and how would you use these metrics to identify potential risks or areas for improvement?