Building an EBITDA Bridge: Step by Step

The EBITDA bridge is the central analytical output of any Quality of Earnings analysis. Knowing how to build one — quickly, accurately and in a format that communicates clearly to a client — is a foundational skill for any Transaction Services analyst.

What Is an EBITDA Bridge?

An EBITDA bridge is a schedule that reconciles reported EBITDA to adjusted (normalised) EBITDA, listing every adjustment with its description and financial impact. It is the backbone of the QoE section in an FDD report.

Step 1: Build the Historical P&L

Start by constructing a clean historical P&L in Excel, covering at least the last two full financial years plus the last twelve months (LTM):

Revenue by category or business line
Cost of goods sold / direct costs
Gross profit
Operating expenses (by category: staff, premises, IT, marketing, etc.)
EBITDA (Revenue − COGS − Operating Expenses)
D&A (to cross-check to reported EBIT)

Ensure your P&L reconciles to the audited statutory accounts. Any difference must be explained.

Step 2: Identify Adjustments

Review the data room systematically for adjustment candidates:

Board packs and management commentary mentioning one-off items
Management's own adjusted EBITDA schedule (in the datapack)
Items that appear in only one year or with an unusual magnitude
Notes to the accounts flagging exceptional items
Audit adjustments or management override disclosures

Build a preliminary list of potential adjustments, each with a description and a reference to the supporting document.

Step 3: Quantify Each Adjustment

For each adjustment item:

Determine the year(s) in which it appears
Quantify the P&L impact (positive or negative)
Verify the figure against the underlying invoice, contract or board resolution
Assess whether it is fully one-off or partially recurring

Step 4: Apply a Category to Each Adjustment

Categorise each item as:

Non-recurring: True one-off items
Run-rate: Annualisation of mid-year changes
Pro forma: Structural changes not yet in the P&L
Challenged / rejected: Items management proposed but the FDD team does not accept

Step 5: Build the Bridge

In Excel, build a vertical bridge from reported EBITDA to adjusted EBITDA:

Reported EBITDA           €Xm
+ Item A (one-off legal)  +€0.2m
+ Item B (restructuring)  +€0.5m
- Item C (grant income)   -€0.3m
+ Item D (run-rate hire)  +€0.1m
= Adjusted EBITDA         €(X+0.5)m

Include a column for each year and an LTM column. Colour-code additions and deductions for readability.

Step 6: Sense-Check the Bridge

Before presenting:

Does the adjusted EBITDA margin seem reasonable for the sector?
Is the total adjustment amount proportionate to the business size?
Are there any items in the bridge that could be contested without sufficient evidence?
Is there internal consistency (e.g. if a cost is removed, has the related NWC impact been considered)?

Common Pitfalls

Accepting management's descriptions without reviewing source documents
Mixing recurring and non-recurring items in the same adjustment line
Failing to check whether items claimed as one-off have appeared in prior years
Omitting the LTM column, which is usually the most important for valuation

Conclusion

Building a rigorous, well-evidenced EBITDA bridge is the core analytical task of the FDD analyst. It is tested in TS interviews — candidates who can narrate the bridge construction process confidently demonstrate genuine readiness for the role.

The Transaction Services Interview Programme (€119.99, one-time) walks you through building a complete EBITDA bridge from a real FDD dataset, with an Excel template included. Start today.