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I know almost nothing about finance, and the only things I had to look up in the linked post were "EBITDA," "DJIA" (which turns out to just be an acronym for th

I know almost nothing about finance, and the only things I had to look up in the linked post were "EBITDA," "DJIA" (which turns out to just be an acronym for the Dow Jones) and "flywheel effect." Seems pretty plain to me.

baby 7y ago
Because I'm a huge noob too I googled these terms: * EBITDA or Earnings Before Interest, Tax, Depreciation and Amortization. It's pretty much the net (before-tax) income of the company (per year), but after expenses that are easy to calculate (like employees' salaries and rent). * DJIA or Dow Jones Industrial Average. It seems to be an index of the stock market, meaning a number calculated from the price of a selected number of stocks (in practice, 30 large US companies). * The Flywheel Effect. I guess to understand this one you need to understand what a flywheel is, it seems to be a pretty heavy wheel. The metaphor here is that building a successful company is like pushing a massive wheel for a very long time until it catches some momentum and roll by itself?
- deleted 7y ago
  [deleted]
- agrover 7y ago
  And that can be used to spin up secondary revenue streams more easily than starting from scratch.
- unreal37 7y ago
  It's worth noting that the DJIA comment was specifically mentioned because it contains only 30 companies and a terrible indicator of the overall health of all American companies. But it's used as the primary indicator of the health of American companies in nightly news reports. "Similar to the DJIA, last-round private valuations are harmful metrics that create the illusion of prosperity." A lot of people just wish the DJIA 30 would disappear from popular use. It's a harmful metric that gives the illusion of prosperity.
  - briandear 7y ago
    The Russel and S&P are generally right next to the Dow in financial news. There is value in each of those indexes if you know what you are evaluating. The health of large companies does reflect the health of the overall economy for the most part. Combining that with the S&P gives a pretty good measure of the US economy.
  - lonelappde 7y ago
    The only people who don't like the DJIA are nerds who are annoyed that such a simple model works so well at approximating the whole market: https://www.marketwatch.com/investing/fund/vtsax/charts https://www.marketwatch.com/investing/fund/vtsax/charts
- throw_away 7y ago
  Flywheel effect is a jeff bezos/jim collins (good to great) reference: https://medium.com/swlh/the-amazing-flywheel-effect-80a0a21a5ea7 https://medium.com/swlh/the-amazing-flywheel-effect-80a0a21a...
elamje 7y ago
A simple way to reason about EBITDA, is raw earnings before tax and accounting specialists come in and do financial engineering. Typically accountants will do some magic to earnings by using ITDA, so this gives a bit more of a uniform earnings picture across businesses.
- ericb 7y ago
  Another way to reason about it is "earnings before bad stuff." Your explanation makes it sound like it is a superior measure by painting the other GAAP measures as "financial engineering." EBITDA is vastly inferior, although it has some uses in comparisons and also glossing over bad news. Examples: I take a loan with 1 million a month in interest payments and I "invest it" and "earn" 1 million a month. EBITDA: 1 million a month. Amazing! Real world, net zero. I buy a 20 million dollar piece of equipment that lasts 20 years. From it, I "earn" a million a year. EBITDA: great! Real world, net zero.
  - GoRudy 7y ago
    I disagree it can be indicative of the real world. It is if I’m buying it from you. If I’m buying the business id like to understand the cash flow I could expect. I’m not necessarily going to have that loan with interest or the same taxes so it makes sense to pull it out and have an earnings only metric
  - takinola 7y ago
    Each financial metric tells a story. They each tell different stories so it is not a case of one being more important than the other. EBITDA is a way to compare similar companies that may have different capital structures. So it allows a side-by-side comparison of the core business. For instance, Companies A and B are competitors in the same market and both have a million dollars in annual revenue and earnings of $100K. Are they both worth the same? What if I told you that Company A has no debt, and is depreciating its assets at an accelerated rate (ie is "paying off" its capital investments rapidly) while Company B is loaded up with massive debt and is depreciating more slowly? That changes the picture a little bit, doesn't it? This is why you have different metrics. Think of them as clues in a detective story rather than horses in a race.
gumby 7y ago
> "DJIA" (which turns out to just be an acronym for the Dow Jones) Dow jones compiles indices on several sectors, not just the Industrials. Hence the four letters in the acronym.
- paultopia 7y ago
  Oooh thanks.
  - lonelappde 7y ago
    Parent post was misleading, though.
- lonelappde 7y ago
  That's extremely misleading. DJIA is the original one and it's named that because A is for average and DJ is for Dow Jones. So only one of letters could vary in context, and only the I is the one people mean when they take about Dow Jones. "The Dow" or "the Dow Jones" always means DJIA.
  - repsilat 7y ago
    The WSJ is owned by "Dow Jones the company". Not "the" Dow Jones, I'll grant. It comes up in their articles sometimes, and is probably why they prefer to refer to the DJIA as a measure of market price than the SPX.
PunksATawnyFill 7y ago
I liked the post except for its repeated use of the nonsense buzzphrase "virtue signaling." WTF is that supposed to mean? We have lots and lots of words; I don't believe this BS phrase fills an otherwise unfillable gap.
- jmccaf 7y ago
  I find "virtue signaling" is a useful concept; It's the idea of doing public things that signal how virtuous you are, but don't have the impact they suggest. Example might be front-yard cactus gardens to save water compared to lawns ? (while ignoring washing , agriculture, and industry )

baby 7y ago

Because I'm a huge noob too I googled these terms: * EBITDA or Earnings Before Interest, Tax, Depreciation and Amortization. It's pretty much the net (before-tax) income of the company (per year), but after expenses that are easy to calculate (like employees' salaries and rent). * DJIA or Dow Jones Industrial Average. It seems to be an index of the stock market, meaning a number calculated from the price of a selected number of stocks (in practice, 30 large US companies). * The Flywheel Effect. I guess to understand this one you need to understand what a flywheel is, it seems to be a pretty heavy wheel. The metaphor here is that building a successful company is like pushing a massive wheel for a very long time until it catches some momentum and roll by itself?

deleted 7y ago
[deleted]
agrover 7y ago
And that can be used to spin up secondary revenue streams more easily than starting from scratch.
unreal37 7y ago
It's worth noting that the DJIA comment was specifically mentioned because it contains only 30 companies and a terrible indicator of the overall health of all American companies. But it's used as the primary indicator of the health of American companies in nightly news reports. "Similar to the DJIA, last-round private valuations are harmful metrics that create the illusion of prosperity." A lot of people just wish the DJIA 30 would disappear from popular use. It's a harmful metric that gives the illusion of prosperity.
- briandear 7y ago
  The Russel and S&P are generally right next to the Dow in financial news. There is value in each of those indexes if you know what you are evaluating. The health of large companies does reflect the health of the overall economy for the most part. Combining that with the S&P gives a pretty good measure of the US economy.
- lonelappde 7y ago
  The only people who don't like the DJIA are nerds who are annoyed that such a simple model works so well at approximating the whole market: https://www.marketwatch.com/investing/fund/vtsax/charts https://www.marketwatch.com/investing/fund/vtsax/charts
throw_away 7y ago
Flywheel effect is a jeff bezos/jim collins (good to great) reference: https://medium.com/swlh/the-amazing-flywheel-effect-80a0a21a5ea7 https://medium.com/swlh/the-amazing-flywheel-effect-80a0a21a...

elamje 7y ago

A simple way to reason about EBITDA, is raw earnings before tax and accounting specialists come in and do financial engineering. Typically accountants will do some magic to earnings by using ITDA, so this gives a bit more of a uniform earnings picture across businesses.

ericb 7y ago
Another way to reason about it is "earnings before bad stuff." Your explanation makes it sound like it is a superior measure by painting the other GAAP measures as "financial engineering." EBITDA is vastly inferior, although it has some uses in comparisons and also glossing over bad news. Examples: I take a loan with 1 million a month in interest payments and I "invest it" and "earn" 1 million a month. EBITDA: 1 million a month. Amazing! Real world, net zero. I buy a 20 million dollar piece of equipment that lasts 20 years. From it, I "earn" a million a year. EBITDA: great! Real world, net zero.
- GoRudy 7y ago
  I disagree it can be indicative of the real world. It is if I’m buying it from you. If I’m buying the business id like to understand the cash flow I could expect. I’m not necessarily going to have that loan with interest or the same taxes so it makes sense to pull it out and have an earnings only metric
- takinola 7y ago
  Each financial metric tells a story. They each tell different stories so it is not a case of one being more important than the other. EBITDA is a way to compare similar companies that may have different capital structures. So it allows a side-by-side comparison of the core business. For instance, Companies A and B are competitors in the same market and both have a million dollars in annual revenue and earnings of $100K. Are they both worth the same? What if I told you that Company A has no debt, and is depreciating its assets at an accelerated rate (ie is "paying off" its capital investments rapidly) while Company B is loaded up with massive debt and is depreciating more slowly? That changes the picture a little bit, doesn't it? This is why you have different metrics. Think of them as clues in a detective story rather than horses in a race.

gumby 7y ago

> "DJIA" (which turns out to just be an acronym for the Dow Jones) Dow jones compiles indices on several sectors, not just the Industrials. Hence the four letters in the acronym.

paultopia 7y ago
Oooh thanks.
- lonelappde 7y ago
  Parent post was misleading, though.
lonelappde 7y ago
That's extremely misleading. DJIA is the original one and it's named that because A is for average and DJ is for Dow Jones. So only one of letters could vary in context, and only the I is the one people mean when they take about Dow Jones. "The Dow" or "the Dow Jones" always means DJIA.
- repsilat 7y ago
  The WSJ is owned by "Dow Jones the company". Not "the" Dow Jones, I'll grant. It comes up in their articles sometimes, and is probably why they prefer to refer to the DJIA as a measure of market price than the SPX.

PunksATawnyFill 7y ago

I liked the post except for its repeated use of the nonsense buzzphrase "virtue signaling." WTF is that supposed to mean? We have lots and lots of words; I don't believe this BS phrase fills an otherwise unfillable gap.

jmccaf 7y ago
I find "virtue signaling" is a useful concept; It's the idea of doing public things that signal how virtuous you are, but don't have the impact they suggest. Example might be front-yard cactus gardens to save water compared to lawns ? (while ignoring washing , agriculture, and industry )