6 ms·

Uh huh. Adjusted, meaning EBITDA, or as Charlie Munger refers to them "bullshit earnings".

absherwin 5y ago
That’s true for most adjustments. Buffett also suggests investors ignore income statement effects of marking securities to market. “I must first tell you about a new accounting rule – a generally accepted accounting principle (GAAP) – that in future quarterly and annual reports will severely distort Berkshire’s net income figures and very often mislead commentators and investors. The new rule says that the net change in unrealized investment gains and losses in stocks we hold must be included in all net income figures we report to you. That requirement will produce some truly wild and capricious swings in our GAAP bottom-line.” https://www.berkshirehathaway.com/2017ar/2017ar.pdf https://www.berkshirehathaway.com/2017ar/2017ar.pdf
vineyardmike 5y ago
> Adjusted, meaning EBITDA, No. Adjusted EBITDA. Meaning not EBITDA. EBITDA is not "bullshit earnings".
- jcrben 5y ago
  EBITDA is bullshit if depreciation is an expected, significant part of your business. For many vc-backed companies, it isn't, but for any company with major physical capex, it very much is a real expense. There's also the whole inconsistency with capitalizing software expenses... if you want to be aggressive about accounting, you certainly can. But of course the biggest part of this story is stock-based comp, which is very much a real expense.
  - vineyardmike 5y ago
    True, but (1) uber owns nothing (mostly), and (2) depreciation doesn't really affect real-world profit/loss as a "regular person" expects. Its mostly an accounting tool (that often lets companies hide money). If you eg. build a building, you can depreciate ~10% a year in many cases, but that doesn't really mean you're losing/gaining money. Eg. a residential building can depreciate at 5% a year. If you owned and rented a house in SF, its not decreasing in value by 5% a year, probably even considering cost of repairs/upgrades grows as a building ages (the purpose of this metric). So including a (-5% of building) depreciation amount on the earnings of said rental property makes little sense when evaluating if its "profitable".
    - marsdepinski 5y ago
      Uber owns a huge software platform. Checkout how much it costs them to maintain it.
      - youngtaff 5y ago
        That's one of the funny things about accounting… In some countries development costs can be captalised, and the depreciated over future years (when that software is earning revenue) Sort of ignores the fact that software is always a depreciating asset from the time you first start writing it
      - vineyardmike 5y ago
        > Checkout how much it costs them to maintain it. Thats Operational Expenditure (OpEx) not Capital Expenditure (CapEx) usually. Unless they own servers, or bought licenses to software, etc.

That’s true for most adjustments. Buffett also suggests investors ignore income statement effects of marking securities to market. “I must first tell you about a new accounting rule – a generally accepted accounting principle (GAAP) – that in future quarterly and annual reports will severely distort Berkshire’s net income figures and very often mislead commentators and investors. The new rule says that the net change in unrealized investment gains and losses in stocks we hold must be included in all net income figures we report to you. That requirement will produce some truly wild and capricious swings in our GAAP bottom-line.” https://www.berkshirehathaway.com/2017ar/2017ar.pdf https://www.berkshirehathaway.com/2017ar/2017ar.pdf

vineyardmike 5y ago

> Adjusted, meaning EBITDA, No. Adjusted EBITDA. Meaning not EBITDA. EBITDA is not "bullshit earnings".

jcrben 5y ago
EBITDA is bullshit if depreciation is an expected, significant part of your business. For many vc-backed companies, it isn't, but for any company with major physical capex, it very much is a real expense. There's also the whole inconsistency with capitalizing software expenses... if you want to be aggressive about accounting, you certainly can. But of course the biggest part of this story is stock-based comp, which is very much a real expense.
- vineyardmike 5y ago
  True, but (1) uber owns nothing (mostly), and (2) depreciation doesn't really affect real-world profit/loss as a "regular person" expects. Its mostly an accounting tool (that often lets companies hide money). If you eg. build a building, you can depreciate ~10% a year in many cases, but that doesn't really mean you're losing/gaining money. Eg. a residential building can depreciate at 5% a year. If you owned and rented a house in SF, its not decreasing in value by 5% a year, probably even considering cost of repairs/upgrades grows as a building ages (the purpose of this metric). So including a (-5% of building) depreciation amount on the earnings of said rental property makes little sense when evaluating if its "profitable".
  - marsdepinski 5y ago
    Uber owns a huge software platform. Checkout how much it costs them to maintain it.
    - youngtaff 5y ago
      That's one of the funny things about accounting… In some countries development costs can be captalised, and the depreciated over future years (when that software is earning revenue) Sort of ignores the fact that software is always a depreciating asset from the time you first start writing it
    - vineyardmike 5y ago
      > Checkout how much it costs them to maintain it. Thats Operational Expenditure (OpEx) not Capital Expenditure (CapEx) usually. Unless they own servers, or bought licenses to software, etc.