The EBITDA you already publish
Updated: 11 hours ago
Under IFRS 18, is a company's EBITDA a management-defined performance measure?
Almost every results announcement has an EBITDA in it, and most have an "adjusted" one too. Until now they lived outside the financial statements, governed in the EU by ESMA's guidelines on alternative performance measures and otherwise by whatever the company chose to say.
From 2027 IFRS 18 brings many of them inside. A management-defined performance measure, or MPM, has to be explained and reconciled in a single note in the audited financial statements, with the tax and non-controlling interest effect of every reconciling item. IFRS 18 exempts one EBITDA-like subtotal from those rules, and many finance teams assume their EBITDA is that subtotal. Often it is not.
What makes a measure an MPM
An MPM is a subtotal of income and expenses that (IFRS 18.117):
the company uses in public communications outside the financial statements, such as results announcements, investor presentations and the management commentary in the annual report;
communicates management's view of an aspect of the financial performance of the company as a whole; and
is not one of the subtotals listed in IFRS 18.118 or specifically required by IFRS Accounting Standards.
IFRS 18 presumes that a subtotal used in public communications does communicate management's view. The presumption can be rebutted, but only with reasonable and supportable information that it does not and that there is another reason for using it. Oral communications and social media posts are not public communications for this purpose.
Some measures are out of scope altogether because they are not subtotals of income and expenses: free cash flow, net debt, revenue growth and other ratios (IFRS 18.B116). But the parts of a ratio can be MPMs. If the investor presentation shows net debt to adjusted EBITDA, adjusted EBITDA is an MPM even though the ratio is not (IFRS 18.B117).
The exemption is narrower than it looks
IFRS 18.118 lists the subtotals that are never MPMs. They include gross profit and similar subtotals, operating profit before depreciation, amortisation and impairments within the scope of IAS 36, operating profit together with income and expenses from equity-accounted investments, profit before income taxes, and profit from continuing operations. The subtotals IFRS 18 itself requires, such as operating profit, are not MPMs either.
Item (b) is the one that looks like EBITDA. But it is a precise subtotal, built on IFRS 18's new definition of operating profit. Most published EBITDA figures are built differently:
They start from the bottom. EBITDA is usually profit before tax with interest, depreciation and amortisation added back. Under IFRS 18 that number still contains everything in the investing category: the share of profit of associates and joint ventures, dividends, rental income from investment property and interest income on cash. Operating profit does not.
They treat impairment differently. Item (b) excludes impairments within IAS 36. An EBITDA that adds back only depreciation and amortisation, or that also adds back impairment of receivables or inventory write-downs, which are not within IAS 36, is a different subtotal.
They are adjusted. Restructuring, share-based payments, acquisition costs and other "one-off" items. Once anything else is taken out, the measure is not item (b).
A measure that matches item (b) exactly is exempt. Anything else is an MPM if it meets the other two criteria, whatever it is called.
One company, three measures
Kestrel Components plc is a wholly owned group with a 31 December year end. Its first IFRS 18 statement of profit or loss, for 2027, looks like this. Depreciation and amortisation of €3,200,000 is included in cost of sales and administrative expenses, and disclosed by nature in the notes:
Statement of profit or loss | €000 |
Revenue | 50,000 |
Cost of sales | (31,000) |
Selling, general and administrative expenses | (10,500) |
Impairment of goodwill (IAS 36) | (1,500) |
Operating profit | 7,000 |
Share of profit of associate | 600 |
Interest income on cash | 200 |
Profit before financing and income taxes | 7,800 |
Interest on borrowings and lease liabilities | (1,600) |
Profit before income taxes | 6,200 |
Its results release and investor presentation use three figures:
Measure | €000 | An MPM? |
Operating profit before depreciation, amortisation and IAS 36 impairment | 11,700 | No: IFRS 18.118(b) |
"EBITDA" in the results release: profit before tax, net interest, depreciation and amortisation | 10,800 | Yes |
"Adjusted EBITDA": also before restructuring and share-based payments | 13,800 | Yes |
The exempt subtotal is €7,000,000 + €3,200,000 + €1,500,000 = €11,700,000. Kestrel's own EBITDA, €6,200,000 + €1,600,000 − €200,000 + €3,200,000, is €10,800,000. The difference is small, but it is real: Kestrel's measure still deducts the goodwill impairment of €1,500,000 and includes the €600,000 share of the associate's profit. Because it is not the item (b) subtotal, it is an MPM. Adjusted EBITDA, which goes further, plainly is.
What the note has to contain
All MPM disclosures go in a single note (IFRS 18.122). For each MPM, IFRS 18.123 requires:
a description of the aspect of performance it communicates, and why management thinks it is useful;
how it is calculated;
a statement that it gives management's view and is not necessarily comparable with measures of other companies that have similar names;
a reconciliation to the most directly comparable subtotal listed in IFRS 18.118, or total or subtotal required by IFRS Accounting Standards (123(c));
the income tax effect and the effect on non-controlling interests of each reconciling item (123(d)), and how the tax effect was determined (123(e)).
Changes matter too. If a company changes how an MPM is calculated, adds a new one or stops using one, it explains the change and why, and restates the comparative information (IFRS 18.124). For Kestrel, the reconciliation of adjusted EBITDA might look like this:
Adjusted EBITDA reconciliation | €000 | Tax effect |
Operating profit before depreciation, amortisation and IAS 36 impairment | 11,700 | |
Restructuring costs | 1,100 | (275) |
Share-based payment expense | 400 | – |
Share of profit of associate | 600 | – |
Adjusted EBITDA | 13,800 | (275) |
Kestrel works out tax effects at the statutory rate of 25% on the items that are deductible (IFRS 18.B141(a)). Its share-based payment expense attracts no tax deduction, and the share of the associate's profit is already stated after tax, so neither has a tax effect. The group is wholly owned, so every NCI effect is nil, and the note says so. EBITDA itself would be reconciled in the same way, with two items: the goodwill impairment of €1,500,000 deducted and the associate's profit of €600,000 added.
Two ways to respond
Align with the exempt subtotal. Publish operating profit before depreciation, amortisation and IAS 36 impairment instead, under a label that describes it faithfully (IFRS 18.43). If you have no investing-category income or expense, the difference may be academic. If, like Kestrel, you have an associate and interest income below operating profit, "EBITDA" no longer describes that number accurately, and a descriptive label is safer.
Keep your measure and disclose it. If the market follows your EBITDA, and lenders test covenants on it, changing it to avoid a note is the wrong reason to change it. Keep it, and give it the MPM note.
Adjusted earnings per share follow the same logic. From 2027 IAS 33 allows extra per-share amounts in the notes only for IFRS 18 totals and subtotals or MPMs, with basic and diluted amounts shown with equal prominence (IAS 33.73B–73C). In the EU, ESMA's guidelines continue to apply to measures outside the financial statements.
Why this matters for December 2026
IFRS 18 applies to annual periods beginning on or after 1 January 2027, and the EU endorsed it in February 2026. It applies retrospectively, so for a calendar-year company the 2026 figures are the comparatives:
the 2027 MPM note will need the 2026 reconciliations, with their tax and NCI effects;
the first annual report must reconcile each line of the 2026 statement of profit or loss from IAS 1 to IFRS 18 (IFRS 18.C3);
the June 2027 half-year report must include the MPM disclosures (IAS 34.16A(m)) and the IFRS 18 headings and subtotals, with reconciliations for the comparative interim periods (IFRS 18.C4–C5).
So the work starts with this year's results. List every subtotal of income and expenses in the 2026 results release, investor deck and annual report front half. Test each one against IFRS 18.117 and 118. Decide which you will keep, build the 2026 reconciliations with their tax and NCI effects, and agree the approach with your audit committee and your auditor.
What the auditor will look at
The MPM note is part of the audited financial statements, so the reconciliations, tax effects and descriptions are now audited. Expect questions on completeness, meaning whether every MPM in your public communications has been identified; on whether labels and descriptions are faithful; on whether a definition has quietly changed since last year; and on the method for the tax effects.
Work it through with our tools
Our IFRS 18 Transition Tool moves a real set of accounts from IAS 1 to IFRS 18: it classifies income and expenses into the new categories, builds the required subtotals, and helps you identify, reconcile and document your MPMs. It is free with a member account.
For the year-end work in Excel, our IFRS 18 Transition Pack takes the statement of profit or loss from IAS 1 to IFRS 18 line by line. It classifies each item of income and expense into the new categories, restates both years, builds the MPM note with the tax and non-controlling interest effect of every reconciling item, prepares the specified expenses disclosure and the restated cash flows, and drafts the transition note with the IFRS 18.C3 reconciliation and a disclosure checklist. Ardnavell Home Brands plc is its worked example.
IFRS 18 in the Learning Hub: the categories, the new subtotals and MPMs, with practice questions that include MPM reconciliations and adjusted EPS.
Year-End 2026 Reporting Update: our CPD course. Webinar 2 treats 2026 as the dress rehearsal for IFRS 18.
IAS 33 EPS Calculator: the basic and diluted EPS that any adjusted EPS must sit alongside, using the same weighted average number of shares.
The Tipping Point: weigh and write up the judgements, such as whether a measure communicates management's view.
Disclosure Review: check that the new note is complete before the auditor does.
EBITDA is not banned, and IFRS 18 does not define it. It simply asks whether yours is the one subtotal it exempts. If it is not, the number you have been publishing for years now needs a note, a reconciliation and an audit.
