Talk:Earnings before Interest, Taxes, Depreciation, and Amortization

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[edit] Easy analogy

As I teach ebitda in my accounting class, I often use the following analogy, which I would like someone to be bold and steal from me into this article and elsewhere... ;) When discussing what the ebitda means and what it doesn't mean, I always use the rhetorical question, "When was the last time you told someone your net income?" Everyone tells their friends their ebitda, their gross, because it allows you more social clout. Anyway... --Mrcolj 01:05, 15 November 2006 (UTC)

[edit] Nov 06

I'm firmly in the accrual accounting camp, so I think this page is one-sided. Since the section removed (below) was clearly a response to this, and it was deleted, I'll ask you guys first before making any corrections. I have no problems with these pages presenting POVs. I think I can counter anything you present. Nor do I quibble about references. But I am not going to waste my time if it will only be promptly deleted because you don't like a word. So ?????Retail Investor 22:43, 11 November 2006 (UTC)

Do it. Or if you're hesitant, make changes here first... I'll back you. --Mrcolj 01:05, 15 November 2006 (UTC)

Done. I tried to be fair to both sides even though I think EBITDA is wrong, wrong, wrong!Retail Investor 20:35, 17 November 2006 (UTC)

[edit] Aug 05

I recently removed the following section. It might merit restoration but it had some important flaws that made me decide to remove it pending further editing. Here is my reasoning:

• "The most important metric for investors is the company's income" is incorrect. You could argue that it is an important metric, or that it is considered by some to be the most important metric. However, there are many ways in which the net income measure misrepresents the financial health of a company. Further, no one ever retired because they had put so much "net income" in the bank. Since it's ultimately cash that we all earn, save and spend, many argue that cash flow is the most important metric for investors. Indeed, modern valuation practice is based on the projection of a company's future free cash flows (not profits) and estimation of the present value of those cash flows based on the time value of money.

• EBITDA is clearly NOT the same thing as "operating cash flow". For example, if a company increases its inventories by $100M in a period, its operating cash flow will be reduced by $100M, but there will be no impact on EBITDA.

• It is exactly wrong to say that "amortization ... costs money". A primary reason to consider earnings without the impact of amortization is that it costs nothing. It reflects an expenditure made in a prior year -- all of the money has already been spent, but in order to match the impact of that expenditure to all of the years in which it will create value for the company, an expense is "artificially" recorded in subsequent years.

==Discussion==
When companies publish their financial statements, the most important metric for   
investors is the company's income, which is calculated as the company's revenue 
minus all its expenses. Some companies also publish their EBITDA, which, these 
companies usually claim, provides a more true picture of the company's profitability than 
the "income" number.

The EBITDA is the earnings before cash expenses of interest income/expense and income tax, 
and non-cash expenses of depreciation and amortization of capital expenditures. So 
it's the same thing as the operating cash flow (from the cash flow statement) 
without cash outflow from interest and taxes. But there is a reason the interest, 
amortization, and taxes is on the income statment, because it cost money. The issue is 
however not the "net net" cash and income from the company, but comparable numbers. 
Management compare all levels of income and cash flow to earlier periods. And a favorite 
may be the EBITDA.

• I linked the terms "accrual accounting" and "cash basis accounting" to the relevant pages.DanG 08:56, 13 July 2006 (UTC)