Bridging GAAPs: R&D Treatment and the True Value Story

For many healthcare innovators, EBITDA paints an incomplete picture, not because the business isn’t strong, but because GAAP doesn’t always capture the economics that drive long-term value.

The GAAP Challenge

Digital health: GAAP allows software development costs to be capitalized once technical feasibility is reached, but many teams default to expensing everything.

MedTech and biotech: R&D must be expensed under GAAP. For companies with early commercial traction, this treatment can artificially depress earnings.

Why Adjusted EBITDA Matters

In these cases, presenting adjusted EBITDA with non-GAAP R&D capitalization can provide a more accurate picture, so long as the methodology is transparent, consistent, and well-supported. This is not accounting sleight of hand; it’s about aligning costs with revenues so investors and buyers see the business’s true earnings trajectory.

What Thoughtful Founders Are Doing

Capitalizing R&D for digital health, as GAAP permits.

Presenting adjusted EBITDA bridges that clarify rather than obscure performance.

Using clear, transparent adjustments to reflect the business, not disguise it.

Example:

GAAP EBITDA: $5.0M

Capitalized R&D: $3.0M

Amortization: ($0.6M)

R&D Adjusted EBITDA: $7.4M

Buyers and investors will do this math anyway. The most effective founders help them get there faster.