When an addback doubles claimed earnings

The claim to test

The source challenges an illustrative £1m earnings presentation built from £0.5m actual earnings plus a proposed £0.5m marketing addback. The arithmetic is simple; the commercial assumption is not. The disputed question is whether the revenue can continue if that spending is removed. This is a hypothetical earnings-quality example, not a verified company forecast. Watch source

Separate calculation from evidence

Step	Amount
Earnings before the proposed adjustment	£500,000
Marketing expense proposed for removal	£500,000
Claimed adjusted earnings	£1,000,000

£500k + £500k does equal £1m. But the adjustment increases the earnings estimate by 100%, so half the claimed final figure depends on the disputed assumption. Those percentages are editorial calculations. Correct addition cannot demonstrate that customers keep buying after the marketing program stops.

For an explicitly editorial sensitivity, suppose a buyer applies a three-times multiple. The unadjusted figure would imply £1.5m, while the adjusted figure would imply £3m. The source does not disclose those prices in this example; they simply show how an unsupported adjustment can multiply into a substantial valuation difference.

Ask what changes operationally

What does the marketing spend buy? Is it a one-off campaign, a continuing source of leads, or an activity a replacement owner must fund differently? Does the proposed saving already appear in a recent trading period? Would another cost arise to preserve sales? Evidence that the expense existed is not evidence that it is unnecessary.

The teaching point is to reconcile accounts to sustainable operations before applying a valuation multiple. Addbacks are neither automatically illegitimate nor automatically available to a buyer. Each requires a reason, evidence and a clear statement of remaining uncertainty. Continue with adjusted EBITDA and due diligence.