A hotel seller adds Rs 32 crore of adjustments to Rs 80 crore of reported EBITDA. Which add-backs survive a buyer's quality of earnings review, and what does it do to the price?

Accept the owner's salary, the lawsuit and the renovation closure; reject the recurring restructuring and the pro forma price rise. That gives Rs 99 crore of EBITDA against the seller's Rs 112 crore. At 9x the buyer's value is Rs 891 crore against Rs 1,008 crore, a Rs 117 crore gap. Each rupee of rejected add-back costs Rs 9 of price, which is why buyers fight over them.

Two questions, asked of every line. Will this cost or lost income recur under the new owner, and can the seller prove it with documents? A quality of earningsAn independent review, usually by accountants, of whether a company reported EBITDA is a fair base for valuing it. review exists to answer exactly those. Picture a family selling a corner shop: the father's large salary will vanish when a manager replaces him, but the rent hike announced for next year is a promise, not profit.

Go line by line and say the reason, not just the verdict. Three pass and two fail. The salary passes because a buyer will pay a chief executive the market rate and no more; the Rs 5 crore excess leaves with the owner. The lawsuit passes if it is a single settled case and there is no history of similar claims. The renovation closure passes only if the rooms have reopened and are trading at the old rate, which post-reopening room nights can prove. The restructuring fails because three years in a row is a pattern. The price rise fails because no guest has paid it yet.

It is the line to push hardest on, so say where the doubt lies. Hotels refurbish every several years, so lost trading during a renovation is one-off this year but part of the cycle over a decade. A careful buyer might accept the Rs 10 crore but reduce the multiple, or set aside a refurbishment reserve in the model. Either way, the evidence decides it: monthly occupancy and room rates for the reopened hotel, compared with the same months before the closure.

Translate EBITDA into price, because that is what the seller hears. Rs 13 crore of rejected add-backs at 9x is Rs 117 crore of value, about 12% of the seller's number. A buyer's adviser would open at Rs 891 crore and expect to give ground on the renovation question, not on the restructuring or the price rise. If the seller insists on the price rise, an earn-out tied to next year's actual room rates turns the claim into something the seller is paid for only if it happens.