Why EBITDA is Nonsense

“Everytime you hear EBITDA , substitute it with bullshit earnings”- Charlie Munger

EBITDA is touted as a valuable measure of a company’s performance.

However it is nothing but a smoke screen that obscures the true economic performance of a business

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization .

When interest, taxes , depreciation and amortization are taken out of the equation any company can look great.

This is why Warren Buffett notes that if people are using EBITDA they are either trying to con you or they have already conned themselves.

The main issue Charlie and Warren have with EBITDA is the exclusion of the depreciation figure

Warren repulses at the idea of looking at a figure where the cash requirement of merely staying in place is excluded

Depreciation is a real expense even though it’s a non cash item. Depreciation is basically “reverse float.” With float you get money first and expenses later

With depreciation is actually the worst kind of expense as you lay out the money first before you get revenue.

Why then is Wallstreet intent on using a metric waves away very real costs ?

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