1. EBITDA es un non financial GAAP parameter
2. Las empresas (vease el ejemplo al final de este e-mail) vienen obligadas a presentar una reconciliación al verdadero resultado de explotacion luego son 2 cosas diferentes el EBITDA y el Resultado de Explotación
3. EBITDA no puede compararse con una cuenta de balance, a lo sumo con un item de resultados como por ejemplo las ventas es decir EBITDA % of sales
4. EBTIDA apareció en tiempos de especulacion en los 80 con los leverage buy outs
5. Con el boom del e-commerce en los 90 la mala utilizacion del EBTIDA llegó a esconder fraudes como el de World Com
6 Como resultado de todo esto el EBITDA se utiliza como artiugio contable (y no es un parametro financiero) para maquillar los resultados financieros....y eso solo vale algunas veces en situaciones de venta de empresa que no es el caso del Real Madrid
No vamos a escribir mas lo que tengamos que decir lo diremos en ingles a los medios internacionales. A buen seguro que al presidente de otro club nacional que hace due dilligences todo esto le suena familiar
From: Spanish Leadership
Date: 2011/9/25
To: Spanish Leadership
How EBITDA Can Mislead
11:34 AM Thursday November 19, 2009
by Karen Berman and Joe Knight | Comments (11)
During the dot-com boom, EBITDA became a popular way to measure how healthy a business was. EBITDA scores became the talk of Silicon Valley cocktail parties, where party goers would ask each other, "How soon will you be EBITDA positive?"
Today EBITDA remains a valuable, if controversial, number for evaluating a company's earnings. After all, the WorldCom meltdown was facilitated by financial fraud related to EBITDA.
Before we examine why EBITDA is favored by some and scorned by others, we need to consider EBIT (Earnings Before Interest and Taxes). As you might know, EBIT is synonymous with Operating Income, and is the profit or loss that is generated by operations of a business before interest expenses and taxes. In essence, it's the number that tells you how much profit or loss your operation is generating.
EBITDA is a form of EBIT. Actually, Joe likes to say it's an obvious form of EBIT — EBIT "DUH" (sorry...it's hard to make jokes about EBITDA). It stands for Earnings Before Interest, Taxes,Depreciation, and Amortization.
Depreciation and amortization are unique expenses. First, they are non-cash expenses — they are expenses related to assets that have already been purchased, so no cash is changing hands. Second, they are expenses that are subject to judgment or estimates — the charges are based on how long the underlying assets are projected to last, and are adjusted based on experience, projections, or, as some would argue, fraud.
EBITDA is a number often used in the financial industry as a loan covenant. Borrowing limits for businesses often are set as percentages of EBITDA. One of the most common methods to value small businesses being acquired is by using multiples of EBITDA. For example if you own a business that generated $1 million dollars of EBITDA last year and companies in your industry typically sell for 7 times EBITDA, then the sale price of your business will probably be in the $7 million dollar range.
Bankers like EBITDA because it will eventually represent operating cash flow (since the non-cash expenses are added back in). That helps to explains why bankers like the ratio in loan covenants. If EBITDA is good, the thinking is, operating cash flow will not be far behind.
EBITDA can also be misused. In the mid-nineties when Waste Management was struggling with earnings, they changed their depreciation schedule on their thousands of garbage trucks from 5 years to 8 years. This made profit jump in the current period because less depreciation was charged in the current period. Another example is the airline industry, where depreciation schedules were extended on the 737 to make profits appear better. When WorldCom started trending toward negative EBITDA, they began to change regular period expenses to assets so they could depreciate them. This removed the expense and increased depreciation, which inflated their EBITDA. This kept the bankers happy and protected WorldCom's stock.
Because EBITDA can be manipulated like this, some analysts argue that a it doesn't truly reflect what is happening in companies. Most now realize that EBITDA must be compared to cash flow to insure that EBITDA does actually convert to cash as expected.
In our Financial Intelligence Test one of the questions people miss most often involves EBITDA (even senior finance people missed the EBITDA-based question). Many of us can define what the term EBITDA means, but we also should know why it's important and how it is should be used.
Does your company measure EBITDA? How helpful have you found it to be?
Solo si se vende una empresaLooking to the future, can you envision a time when you might want to sell your business?
"The best way to build a company is to build it as if you're going to sell it," says veteran entrepreneur and Inc. columnist Norm Brodsky. "It has to be built to last."
One place to start measuring your company's potential value in a sale is determining your EBITDA, or earnings before interest, taxes, depreciation, and amortization. It's certainly a mouthful, but the equation itself is really quite simple: subtract expenses from revenue (excluding interests and taxes) without depreciation and amortization (what you pay for tangible and intangible assets). The remaining number paints a basic picture of your profitability as well as your ability to pay off what it owes.
"It's a quick and dirty way to assess the firm's ability to pay back interest or debts," says Gil Sadka, assistant professor of accounting at Columbia Business School inNew York. Sadka calls EBITDA a "quasi-estimate" of your free cash flow, a more traditional and comprehensive assessment of a company's performance. You can get a more accurate reading of your free cash flow by subtracting out new capital expenditures for that year. Once you get this dollar amount, simply build upon the foundation to see how well you are doing.
Understanding EBITDA: Add and Subtract Value
It's unlikely that you as the business owner would be fiddling around with your company's EBITDA. Still, before you sit down with the buyers or investors who will, it's important to understand what they'll be looking at.
Essentially, EBITDA on its own makes for a fairly futile statistic. There is, after all, a very good reason why you depreciate and amortize assets. To simply put those charges back in to earnings may give an unrealistic measure of your finances.
That's where the need for adjustments comes in. Since EBITDA is technically a non-GAAP figure, meaning it does not conform to generally accepted accounting principles, you can make these adjustments almost wherever you see fit. As just mentioned, you might need to devalue assets like old equipment within the overall number. Likewise, you also might have failed to collect some accounts receivables from clients. These result in a net-negative for your operating cash flow.
By the same token, you can also add both tangible assets (like equipment) and intangible assets (like your management team and employees) to the figure. It's typically through this addition process that you arrive at your company's value as a multiple of EBITDA. Let's say you pay yourself a $300,000 salary for a position that someone – like a buyer or competitor – could do for $150,000. That buyer would then add that extra $150,000 back into the value of your company once its absorbed. In this case, the number you arrive at is a form of adjusted EBITDA called "field" EBITDA, where you take into account subsidiaries and components of a company that can be absorbed for little to no cost. The term most often applies when selling the business to one in a similar field, in which case the management team, office space, and other business expenses may fall by the wayside during the takeover.
2011/9/25 Spanish Leadership
The Relevance of EBITDA
by Jerry Olson
Awhile back, an investor of both real estate and stocks asked "are the EBITDA numbers that companies provide to security analysts a meaningful determinant of the stock price?" This article is my response.This article is also located on the Real Estate Investment Model page. You may ask — what does EBITDA and it's relationship with stock prices have to do with Real Estate Investment Analysis? The answer is — not much. But it is tangentially related in that EBITDA is to business what NOI (net operating income) is to real estate investment. In that sense, you can draw some comparisons which highlight the limitations of NOI.EBITDA stands for earnings before interest and taxes and depreciation and amortization. EBITDA is a quick and dirty attempt to get a before tax and interest proxy for cash flow. It's widely used in business, especially in the telecommunications business (e.g. WorldCom, Adelphia, Global Crossing, etc.� see a trend here?). Companies provide Wall Street security analysts and rating agency analysts with EBITDA numbers on a Pro-Forma (as if) basis, meaning they include and/or exclude many unusual non-operating items to arrive at a number that is intended to be representative of "normal" operating conditions.
Since many important and powerful investment research analysts attach importance to these numbers, they can and do influence a stock's price. The question is — should you buy that advice? — i.e. attach much credibility to it. Or be very skeptical of the number. Pro-forma EBITDA numbers have been quite controversial. There are many varying views on the subject. It is my view that you should view EBITDA numbers with extreme circumspect for a variety of reasons that I'll delineate below.
1The Limitations of EBITDA ItselfThe first problem lies with EBITDA itself. Warren Buffett (the Oracle from Omaha), the second wealthiest man in the U.S. (second only to Microsoft's Bill Gates) and often called the greatest stock investor of all time, wrote in his company's (Hathaway Berkshire) 2000 annual report to shareholders: "References to EBITDA make us shudder." The reason is, as put by Forbes Magazine: "EBITDA makes sense only if you think capital expenditures are funded by the tooth fairy." Any freshman in a beginning Finance course will tell you that it's free cash flow that is the principle determinant of value.
Free Cash Flow is the after tax and interest cash flow less any capital expenditures the company needs to make. Ignoring any of these (interest, taxes and capital expenditures) is pure and simple folly, at least where valuation is concerned. Who cares whether a company has a billion dollars in EBITDA cash flow if the company is 95% leveraged and has $2 billion in interest charges for a total net cash flow of minus 1 billion? And we still haven't counted capital expenditures. History is repleat with exactly this type of situation where many company executives (and Wall Street analysts) are all aglow with their large and growing EBITDA numbers only to go bankrupt within months (again, the usual suspects: Enron, Worldcom, Adelphia, Global Crossing, etc.).
2The Problem with Pro-Forma ReportingAnother problem with EBITDA is that it's always presented as a pro-forma number. As I said before, pro-forma numbers add and subtract extraordinary items from the base to arrive at a number that reflects "normal" operating conditions. This sounds reasonable (and in fact I allow a similar mechanism in all of the IPS Planning and Analysis Models). But the problem, when reporting these numbers to Wall Street security analysts, is that there is no standard for what items can be included or excluded in earnings. In fact, there's not even a standard on what to call EBITDA. Many companies accomplish exactly the same thing but call the number "Operating Cash Flow". This makes meaningful comparisons between companies fairly useless.
In addition, without standard definitions on what to include and exclude, you can expect businesses to exclude items that should be included and include items that should be excluded. All perfectly legal. Why would they do this? To skew the financial picture of the company and it's management as favorably as they can. And why do this? Because it's easy, legal, and because pay, bonuses, and particularly stock options are tied to the company's stock price. These are big tempations for executives to nudge the numbers in a positive direction. But all too often things get blow all out of proportion.
3Investment House Conflicts of InterestWhy would the investment houses and their supposedly independent research arms allow this? The operative word is independent. There is supposed to be a wall between the research arm and the securities arm of the investment banks. But the wall is all too often transparent. Both sides of the wall stand to make big money. On the research side, there are some researchers who make hundreds of millions of dollars from their recommendations. Frank Quatrone of Credit Suisse First Boston comes to mind. He's been spending the better part of the decade trying to stay out of jail because he is alleged to have breached the so-called wall.
It seems unbelievable that these guys were recommending companies like WorldCom and Enron right up until they were on the verge of bankrupsy. How can they do this? Pro-forma EBITDA to the rescue. Who would invest in companies at 1000 times earnings (when the historical average is 15) if the security analyst presented a cash flow number that was hugely negative? So, they ignore the free cash flow, which would easily point out big problems, and focus on EBITDA, an easily manipulated number. This is how bubbles happen and how they eventually get burst. You can't keep making up numbers forever. Something has to give, and unfortunately, it's usually your portfolio.
The securities side of the investment bank also makes big money through huges fees from IPO's (initial public offerings), additional security offerings and general consulting (setting up special purpose entities to hide all the debt and manipulate earnings). So, even though they are supposed to be independent of the research arm, the incentives are so large that it sometimes results in the Investment bank looking the other way. And sometimes they get caught. Usually when a huge failure or bankrupsy occurs such as was the case with Worldcom, Enron, et al. In these particular cases, many of the large banks and Investment Banking firms avoided going to court by making record settlements with the government. But these settlements, while large, paled in comparison to the money they earned year after year from these questionable recommendations.
To be fair, not all companies purposely mislead investors. And, as I said, using sloppy EBITDA numbers is legal. Nevertheless, the investor would be wise to be wary of security analyst recommendations, particularly when the justification is based on pro-forma EBITDA numbers. In fact, it's a good idea not to place much emphasis on Earnings in general (GAAP earnings) since these, while officially reported to the SEC (unlike EBITDA numbers), are still subject to the same kinds of manipulation and are not representative of true cash flow.
What do good analysts look at? There's a saying in business: "Profit is a guess, cash is a fact." True after-tax cash flow is the real deal. Watch the cash. While Enron was riding high and setting Earnings records, Operating Cash Flow per share was plummeting. It's extremely hard to fudge cash flow. Even the crooks at Enron with the implicit or explicit help of Arthur Anderson and Investment Bankers can't cover up Cash Flow. At least it's not easy. Which doesn't stop them from trying however. They do this by creating off-balance sheet debt via setting up special purpose entities and synthetic leases. In WorldCom and Enron, these amounted to billions of dollars. So, you'll have to do your homework. But the effort could save you a bundle.
2011/9/25 Spanish Leadership
Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA
What Does Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDAMean?
An indicator of a company's financial performance which is calculated in the following EBITDA calculation:
EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.Investopedia explains Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA
This is a non-GAAP measure that allows a greater amount of discretion as to what is (and is not) included in the calculation. This also means that companies often change the items included in their EBITDA calculation from one reporting period to the next.
EBITDA first came into common use with leveraged buyouts in the 1980s, when it was used to indicate the ability of a company to service debt. As time passed, it became popular in industries with expensive assets that had to be written down over long periods of time. EBITDA is now commonly quoted by many companies, especially in the tech sector - even when it isn't warranted.
A common misconception is that EBITDA represents cash earnings. EBITDA is a good metric to evaluate profitability, but not cash flow. EBITDA also leaves out the cash required to fund working capital and the replacement of old equipment, which can be significant. Consequently, EBITDA is often used as an accounting gimmick to dress up a company's earnings. When using this metric, it's key that investors also focus on other performance measures to make sure the company is not trying to hide something with EBITDA.
Read more:http://www.investopedia.com/terms/e/ebitda.asp#ixzz1Yz7zLi2X2011/9/25 Spanish Leadership---------- Forwarded message ----------
From: Spanish Leadership
Date: 2011/9/25
Subject: Basicas lecciones a FP: El EBITDA no es un resultado de explotación (ya haremos un editorial sobre esto)
Estoy esperando a que Sharon Lechter (una experta americana) me confirme lo que le leí ya en 2002; todos crecimos con profit + depreciation (cash flow) como mucho no con esto del EBITDA y menos decir como FP que la deuda/EBITDA baja...eso no tiene sentido contablemente. Aqui un ejemplo de los muchos que hay en Internet
EBITDA as a percentage of net sales is a non-GAAP measure. The Corporation presents this measure as management believes it is a useful measure to assess the Corporation's operating performance. The following presents the calculation of EBITDA as a percentage of net sales for the quarters ended September 30, 2009 and 2008.
Reconciliation of Net Earnings to EBITDA (dollars in thousands) 2010 2009 2008 Net Earnings Attributable to Martin Marietta Materials, Inc. 97.012 $ 85.459 $ 176.256 Cumulative Effect of Change in Accounting Principle - - - Extraordinary Loss - - - Earnings before Cumulative Effect of Change in Accounting Principle and Extraordinary Loss 97.012 85.459 176.256 Addback: Interest Expense 68.456 73.460 74.299 Income Tax Expense 29.307 27.462 77.297 Depreciation, Depletion, and Amortization Expense 179.877 177.762 169.863 EBITDA $ 374.652 $ 364.143 $ 497.715
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