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This is really a story about EBITDA. "People who use EBITDA are either trying to con you or they're conning themselves."
by blitzar 2y ago
This is really a story about EBITDA.
"People who use EBITDA are either trying to con you or they're conning themselves."
- thelynchmob1 2y agoAuthor of the article here -- kind of, but the idea here was just to write a piece about a capital-intensive business compared to the couple of capital-light businesses I'd covered in the prior articles I wrote, and how that difference in capital requirements plays through the P&L, balance sheet and cash flow statement. One effect of capital intensity is that EBITDA becomes a less useful measure, sure. Another effect is that the cashflow statement becomes incredibly important to running the business, as does understanding the difference between maintenance capex and growth capex.
- pbhjpbhj 2y agohttps://en.wikipedia.org/wiki/Earnings_before_interest,_taxes,_depreciation_and_amortization https://en.wikipedia.org/wiki/Earnings_before_interest,_taxe... Earnings Before Investment Taxes Depreciation & Amortisation
- scoot 2y ago"earnings before interest, taxes, depreciation, and amortization"
- kamaal 2y agoIm not able to see the context here. How is it a con?
- blitzar 2y agohttps://brk-b.com/why-charlie-munger-despised-ebitda_240201.html https://brk-b.com/why-charlie-munger-despised-ebitda_240201....
- rwmj 2y agoIt's known colloquially as "Earnings before bad stuff" because you can use it to hide all the stuff in your accounts that doesn't make you look good. It's not a con, more like obfuscation.
- dspillett 2y ago> It's not a con, more like obfuscation. Which is a very subtle and complex distinction, like the difference between tax evasion and tax avoidance.
- refurb 2y agoIt's one of many metrics that you can use to evaluate a business. Note that's it's not "bad stuff", it's interest, taxes, depreciation and amortization. I'm not sure anyone consider depreciation bad? It's a metric that strips away things that can distort net income. It allows one to see what the core business produces.
- indymike 2y agoIt's not if you use it to understand cash flow. If you use it as a profit replacement, you might be disappointed.
- dmurray 2y agoIt's just one measure of profitability. Is it a con to report a business's gross revenue? Hardly. It has a useful meaning in its context. If you're going to value a business based on a single number, your problems can't be fixed by blaming the number.