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1) It's adjusted EBITDA which makes it even more meaningless. > What is interest, if not an expense? What is tax, if not an expense? What is depreciation if no

by mbesto 5y ago

1) It's adjusted EBITDA which makes it even more meaningless. > What is interest, if not an expense? What is tax, if not an expense? What is depreciation if not an expense? Alright, amortization, yeah, that one could get added back in – I buy that. 2) There is a specific reason these get taken out, because they generally represent values that the company either has little control over (taxes) or represent episodic expenditures (capital purchases, or debt raises) that have meaningful life greater than 1 year. D/A are essentially synonymous. So, no, D/A are not expenses, because they are simply representations of capital expenditures shown as expenses (the distinction is important) throughout the useful life the asset (intangible or tangible). Easy way to illustrate this is an airline who buys an airplane in year 1 and then uses that plane for 30 years. If EBITDA wasn't useful, then calculating their earnings over a period time won't tell you anything about trends of the business health. The devil is in the details. EBITDA is not all that bad, it's just not a "one figure to rule them all", especially since most firms create an "Adjusted" version of it to fit some narrative (and they always do). To your point. The cashflow statement is much more important IMHO.

RC_ITR 5y ago
The reason EBITDA became popular is because private equity firms had low cost of borrowing (e.g., they would manipulate I expense) and were good at financial engineering such that tax rates could easily become 0 in the short term. D and A are excluded because they’re not cash. Then, people just sort of adopted EBITDA as shorthand for “FCF from operations” and then companies like Allbirds took advantage of that to do whatever they want with it.
- mbesto 5y ago
  > Then, people just sort of adopted EBITDA as shorthand for “FCF from operations” Very true. > then companies like Allbirds took advantage of that to do whatever they want with it. Here's an insider secret - everyone manipulates Adj. EBITDA (not just "Allbirds like companies"). It's part of the game of business sellers, which is why buy-side auditing is so important to get right. This is more or less why public security analysts exist - to keep pressure on proper reporting from the company. If WeWork actually went public every analyst worth a salt would basically throw out their "Community Adjusted EBITDA" and the term would be rendered meaningless.

by mbesto 5y ago

RC_ITR 5y ago

The reason EBITDA became popular is because private equity firms had low cost of borrowing (e.g., they would manipulate I expense) and were good at financial engineering such that tax rates could easily become 0 in the short term. D and A are excluded because they’re not cash. Then, people just sort of adopted EBITDA as shorthand for “FCF from operations” and then companies like Allbirds took advantage of that to do whatever they want with it.

mbesto 5y ago
> Then, people just sort of adopted EBITDA as shorthand for “FCF from operations” Very true. > then companies like Allbirds took advantage of that to do whatever they want with it. Here's an insider secret - everyone manipulates Adj. EBITDA (not just "Allbirds like companies"). It's part of the game of business sellers, which is why buy-side auditing is so important to get right. This is more or less why public security analysts exist - to keep pressure on proper reporting from the company. If WeWork actually went public every analyst worth a salt would basically throw out their "Community Adjusted EBITDA" and the term would be rendered meaningless.