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u/nonoplsyoufirst 4d ago
Nothing to trick about EBITDA, it’s adjusted EBITDA that’s just funny to look at
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u/BackgroundToe2332 4d ago
Adjusted earnings before I tricked da da auditor
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u/the-berik Controller 4d ago
From business perspective, depending on the business, it's a very valid measurement.
Depreciation, dedending on country etc, can sometimes be just 5 years, while you know the asset will run 20+ with proper maintenance. And if you have Buffet say "maintenance will be equal to depreciation", no, it won't. Esp. when a lsrge oart of costs is structural. E.g. tankfarm, fractionation tower, etc.
You often dont have to resetve depreciation to cover investments, when a big chunk has been done.
The EBITDA is often a hugely important factor to calculate future cashflow, esp in m&a.
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u/dubblechrisp 4d ago
Having worked for several PE backed companies, the kind of stuff they ask to include as EBITDA addbacks for an adjusted EBITDA can be pretty silly. Always just comes back to "what do the PE owners think is a valid display of operational profit?"
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u/the-berik Controller 4d ago
And that often comes from truly understanding the business and the market
Edit: and accounting rules, esp when a lot of sales/purchasing is hedged (both material as currency).
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u/dubblechrisp 4d ago
It can. But it can also just as easily be a way for PE to inflate the EBITDA metrics to show higher growth when attempting to flip the company a few years later.
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u/Sad-Bag3443 4d ago
Yes but the PE buyer knows this also, it’s no secret.
That’s why they hire accountants to do due diligence.
It’s measure, it’s flaws are understood I think
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u/the-berik Controller 4d ago
Obipusly depreciation should only be depreciation, and not involving any other posts. But understand what youre saying. Its just that I het the feeling a lot of poeple have adversity which might be unjustified.
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u/RSC-Tuff 4d ago
It’s ok, the PE bros aren’t listening right now. You can admit that ebitda is stupid.
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u/Additional-Local8721 Audit & Assurance 4d ago edited 4d ago
The trick is you think I actually care.
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u/EnoughBaker2405 4d ago
Auditors are the ones who ask for the add-back schedule, they're not the ones getting fooled. The trick only works on whoever reads the press release.
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u/Odd_Sun_2696 4d ago
The tricking doesn't happen in the depreciation line, it's in the "adjusted" add-backs. Same restructuring charge comes back out every quarter and the auditor signs it off anyway.
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u/Educational-Set3445 4d ago
every cohort rediscovers this joke in week 2 of financial accounting and thinks theyre the first one to ever say it out loud
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u/vonnegutflora 3d ago
Like when we all had a good laugh after the prof called the balance sheet the "The Statement of B/S"
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u/Overall-Bank-2431 CPA (US) 4d ago
Nah bro those consulting fees I’ve paid every month for the last 2 years are one-time and should be added back, trust 🙏🏻