Resources / Glossary / Run-rate EBITDA

Run-rate EBITDA.

Aka. Run-rate adjusted EBITDA · annualized EBITDA
All terms

What is run-rate EBITDA?

Run-rate EBITDA takes the most recent level of performance and projects it forward as if it applied for a full year. Rather than reporting what a company actually earned over the trailing twelve months, it answers a forward question: what is the business earning right now, annualized? A company that has been earning $3m of EBITDA a month is running at a $36m annual rate, even if the trailing year shows less.

It is widely used to credit actions that have already happened but whose full financial benefit has not yet flowed through the historical numbers — a completed acquisition, a price increase taken mid-year, a cost program finished last quarter, a new contract just signed. Run-rate captures the company as it stands today, not as it averaged over a backward-looking period.

Because it projects forward, run-rate EBITDA sits at the boundary between fair adjustment and aggressive engineering. Annualizing a real, durable change is legitimate; annualizing a temporary spike or crediting savings that have not yet been delivered is where it becomes a number to distrust.

How run-rate EBITDA is constructed

Building a run-rate figure means converting recent reality into a forward annual view:

  1. Start from a recent base. Take the most recent month, quarter, or trailing period that reflects current operating conditions, and annualize it.
  2. Add full-year effect of completed actions. Where an acquisition closed or a price rise took effect partway through the period, include the benefit as if it had applied for the whole year.
  3. Add credited but unrealized savings. Cost actions that are decided and underway but not yet fully reflected — the most contested category, and the one diligence scrutinizes hardest.
  4. Strip out the non-recurring. Remove one-off gains or temporary boosts that would not repeat, so the run-rate reflects sustainable earnings rather than a flattering moment.

The credibility of each adjustment turns on whether the underlying action is genuinely complete and durable. A quality-of-earnings review exists in large part to test exactly these run-rate bridges.

Why run-rate EBITDA is scrutinized

Run-rate EBITDA almost always exceeds reported EBITDA, because it credits the upside of recent actions while assuming none of the offsetting friction. That asymmetry is why buyers treat a seller's run-rate figure as a claim to be verified rather than a fact to be accepted.

The pressure point is the gap between "decided" and "realized." Annualizing a price increase that customers have already paid is defensible; crediting cost savings that exist only in a plan is not. Sophisticated diligence rebuilds the run-rate bridge line by line, accepts the durable items, and discounts or rejects the speculative ones — because the multiple is applied to this number, and every dollar of inflated run-rate becomes several dollars of inflated price.

Frequently asked.

4 questions
01 How is run-rate EBITDA different from LTM EBITDA?

LTM (last twelve months) EBITDA is backward-looking — it reports what the company actually earned over the trailing year. Run-rate EBITDA is forward-looking — it annualizes the current level of performance and the full effect of recent actions, regardless of what the trailing period averaged.

Run-rate is almost always the higher of the two, because it credits improvements that the historical period only partly captured. That difference is precisely why it draws scrutiny.

02 Is using run-rate EBITDA legitimate?

It can be entirely legitimate when the adjustments reflect real, completed, durable changes — a closed acquisition, an in-effect price increase, a finished restructuring. Annualizing these gives a truer picture of the business as it stands than a trailing average that pre-dates them.

It becomes illegitimate when it annualizes temporary spikes or credits benefits that have not actually been realized. The line is whether the underlying action is genuinely done, not merely planned.

03 Why does run-rate EBITDA matter so much in a deal?

Because the valuation multiple is applied to it. If a business is bought at 9x and the run-rate EBITDA is overstated by $2m, the buyer overpays by roughly $18m of enterprise value. The leverage of any error in the earnings base is the multiple itself.

That magnification is why sellers favor a generous run-rate figure and buyers rebuild it from scratch.

04 How do buyers verify a run-rate EBITDA figure?

Through a quality-of-earnings analysis that decomposes the run-rate bridge adjustment by adjustment, tests each against evidence — signed contracts, invoices, completed terminations — and re-grades or removes the ones that do not hold up.

The challenge is that the bridge is built from many small claims scattered across the business, and the support for each lives in different documents. Keeping every run-rate adjustment linked to its underlying evidence — and re-checkable after close — is the kind of traceability VectorShift keeps queryable for the life of the deal.

Related terms

Evaluation

Equity value

The value of a business attributable to its <em>shareholders</em> alone — what is left after every debt and senior claim is satisfied.

Open
Bvaluation

Bridge to equity value

The step-by-step adjustment from <em>enterprise value</em> to equity value — netting debt, cash, and every claim that ranks ahead of common shares.

Open
Lvaluation

Liquidation preference

The right of preferred holders to be paid back <em>first</em> in an exit — a fixed amount off the top before common shares see a dollar.

Open
Dvaluation

DCF

A valuation that discounts a company's projected <em>future cash flows</em> back to today — value as the present worth of what the business will generate.

Open
Svaluation

Sum-of-the-parts

Valuing a company by valuing each business segment <em>separately</em> and adding them up — the right lens for conglomerates and diversified firms.

Open
Dvaluation

Down round

A financing raised at a <em>lower</em> price per share than the previous round — a valuation markdown that dilutes existing holders and can trigger anti-dilution.

Open
VectorShift for deal teams

Put VectorShift to work on every deal.

VectorShift reads the documents your team actually works on — CIMs, management decks, filings, expert calls, portfolio reports — and returns structured, sourced analysis in minutes, not weeks.

Request a demo

See how VectorShift works for your firm

Request Demo