Re: EBITDA [was Re: Interconnects]

[Brian <bri () sonicboom org>]

My take on ebitda, it is what non profitable companies use to put a
positive spin on their situation.

        Bri

On Mon, 20 May 2002, Chris Woodfield wrote:

> The main fallacy of EBITDA is that a lot of people confuse EBIDTA figures with cash
> flow figures. While the utility of a quarterly figure showing cash flow P&L,
> stripping off all noncash transactions, would be substantial, most companies
> prefer to quote EBIDTA instead, which, while disregarding all noncash figures, also
> removes interest and taxes as well, both of which are very much recurring cash
> expenditures and should be included in cash-flow P&L figures. In the absence of a
> cash-flow P/L figure, a lot of people look at EBITDA instead and forget about the
> very real cash expenditures involved with interest and taxes (and often other case
> expenditures that the company chooses to throw out in order to make the number look
> better).
>
> Intermedia, for example, was EBITDA positive for all of the time I was working for
> them, yet was bleeding approx. $100 million plus in interest payments per year.
> This created a very real cash crunch that prompted the sale to Worldcom.
>
> -C
>
> On Sat, May 18, 2002 at 06:09:56PM -0700, Steve Gibbard wrote:
> > On Sat, 18 May 2002, Mike Leber wrote:
> >
> > > press releases regarding their other choices, or perhaps considering
> > > whether the companies they consider alternatives are EBITDA postive
> > > (making a profit, or in otherwords will exist in 12 months) today (not in
> > > an imaginary planned future) or for the few that are EBITDA positive,
> > > whether they actually seem to want your business.
> >
> > "EBITDA positive" does not mean profitable, or even necessarily
> > financially stable.  EBITDA is earnings before interest, taxes,
> > depreciation, and amoritization -- all things that tend to have an impact
> > on your finances.  If you were using EBITDA as the measure of your
> > personal financial situation, you could spend far more than your after tax
> > income, but less than your before tax income, and declare yourself to have
> > come out ahead.  Your bank, however, probably wouldn't see it that way.
> > The same goes for corporate finance, except that the corporations that
> > were announcing their EBITDA numbers as the important financial data often
> > had enough in the bank, and enough market cap, that it didn't become a
> > critical problem for a few years.
> >
> > My understanding is that EBITDA does have legitimate accounting uses, but
> > I'm not clear on what they are.
> >
> > I'm tempted to label this message as off-topic nitpicking, but given that
> > the biggest problem with Internet stability at the moment seems to be
> > financial, I'm not sure it is.
> >
> > -Steve
> >
> > --------------------------------------------------------------------------------
> > Steve Gibbard                               scg () gibbard org