Mark Twain "There are lies, damned lies and statistics". Let's include EBITDA!

Not All EBITDAs Are Created Equal

“Bloomberg Businessweek” Reports in "Fuzzy Math That Fueled Junk Debt Boom Is Sparking Jitters. Getting creative with earnings adjustments helps sell deals" December 13 Online and "These Are The Numbers You're Looking For. Corporate borrowers "adjust" earnings to appear more creditworthy" December 16, 2019 pp 22-24

EBITDA by definition is Earnings Before Interest, Tax, Depreciation, Amortization. As defined, EBITDA should reflect an enterprise’s ability for generating cash from sales revenue after subtracting operational costs, general administration costs and sales costs. Cash remaining may be spent on corporate programs, paying taxes, financing debt or paying dividends. Of course, prima facie, inflating EBITDA makes a company more attractive to investors and lenders. “In the first quarter of this year, companies issuing leveraged loans for mergers and acquisitions inflated EBITDA by 43%” by using up to 22 types of adjustments to EBITDA in one case. Adjustments might include one-time costs, benefits of future cost-cutting programs including “shutting offices, cutting workers, and renegotiating vendor contracts”. For one company, using an “adjusted EBITDA”, this moved 12-month financials from losing $63 million to gaining $353 million. Another company even removed general and administrative costs and in doing so converted “a $933 million loss into $233 million….of community-adjusted EBITDA”. Reportedly, companies using adjusted EBITDA are missing their own earning projections by more than 28% first year after M&A. Read the article

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