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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Pro forma EBITDA

What is pro forma EBITDA after an acquisition, and what should a lender count?

ONE OF 366 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Pro forma EBITDA restates a group's earnings as if an acquisition or a disposal had happened at the start of the test period, so that leverage is measured against the business the lender is actually financing. A group earning US$20m that buys a business which earned US$5m over the same twelve months has pro forma EBITDA of US$25m before any adjustment. The arguable part is what goes on top: expected synergies and cost savings, which facility agreements often allow only up to a cap and within a set period. A lender reads the acquired earnings from the target's own accounts, and the synergies as a forecast.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

Adjusted EBITDA adjusts one business's own history; pro forma EBITDA combines businesses as if they had been one group for the whole period, and the two are often stacked in one definition.

// WORKED IN

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