[47993] in North American Network Operators' Group
Re: EBITDA [was Re: Interconnects]
daemon@ATHENA.MIT.EDU (Chris Woodfield)
Mon May 20 12:11:56 2002
Date: Mon, 20 May 2002 12:08:32 -0400
From: Chris Woodfield <rekoil@semihuman.com>
To: Steve Gibbard <scg@gibbard.org>
Cc: Mike Leber <mleber@he.net>, "nanog@nanog.org" <nanog@nanog.org>
Message-ID: <20020520160831.GA22067@semihuman.com>
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The main fallacy of EBITDA is that a lot of people confuse EBIDTA figures w=
ith cash=20
flow figures. While the utility of a quarterly figure showing cash flow P&L=
,=20
stripping off all noncash transactions, would be substantial, most companie=
s=20
prefer to quote EBIDTA instead, which, while disregarding all noncash figur=
es, also=20
removes interest and taxes as well, both of which are very much recurring c=
ash=20
expenditures and should be included in cash-flow P&L figures. In the absenc=
e of a=20
cash-flow P/L figure, a lot of people look at EBITDA instead and forget abo=
ut the=20
very real cash expenditures involved with interest and taxes (and often oth=
er case=20
expenditures that the company chooses to throw out in order to make the num=
ber look=20
better).
Intermedia, for example, was EBITDA positive for all of the time I was work=
ing for=20
them, yet was bleeding approx. $100 million plus in interest payments per y=
ear.=20
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:
>=20
> On Sat, 18 May 2002, Mike Leber wrote:
>=20
> > 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.
>=20
> "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. =
=20
> 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.
>=20
> My understanding is that EBITDA does have legitimate accounting uses, but
> I'm not clear on what they are.
>=20
> 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.
>=20
> -Steve
>=20
> -------------------------------------------------------------------------=
-------
> Steve Gibbard scg@gibbard.org=09
>=20
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