Two Plus Two Newer Archives  

Go Back   Two Plus Two Newer Archives > Other Topics > Business, Finance, and Investing

Reply
 
Thread Tools Display Modes
  #1  
Old 11-28-2007, 08:38 PM
SlowHabit SlowHabit is offline
Senior Member
 
Join Date: Apr 2006
Posts: 1,509
Default EBITDA

Buffett and Munger don't use it. Munger went as far as saying "anytime you see the words 'EBITDA earnings,' you should substitue '[censored] earnings.'"

Lately, I have been reading Eddie Lampert's letter to shareholders and it's almost as if I was reading Buffett's letters [but with less humor]. One thing that stood out was Lampert's excessive use of EBITDA.

Lampert is currently managing a retail company. Does this means EBITDA is significant in evaluating retail businesses?
Reply With Quote
  #2  
Old 11-28-2007, 10:13 PM
adios adios is offline
Senior Member
 
Join Date: Sep 2002
Posts: 8,132
Default Re: EBITDA

[ QUOTE ]
Buffett and Munger don't use it. Munger went as far as saying "anytime you see the words 'EBITDA earnings,' you should substitue '[censored] earnings.'"

Lately, I have been reading Eddie Lampert's letter to shareholders and it's almost as if I was reading Buffett's letters [but with less humor]. One thing that stood out was Lampert's excessive use of EBITDA.

Lampert is currently managing a retail company. Does this means EBITDA is significant in evaluating retail businesses?

[/ QUOTE ]

Not necessarily. EBITDA provides one of several possible views of company earnings growth. Obviously if a guy is crowing about EBITDA he thinks it provides valuable insight. You'll have to evaluate the I,T,D, and A parts yourself to see if you agree with him.
Reply With Quote
  #3  
Old 11-28-2007, 11:45 PM
SlowHabit SlowHabit is offline
Senior Member
 
Join Date: Apr 2006
Posts: 1,509
Default Re: EBITDA

[ QUOTE ]
[ QUOTE ]
Buffett and Munger don't use it. Munger went as far as saying "anytime you see the words 'EBITDA earnings,' you should substitue '[censored] earnings.'"

Lately, I have been reading Eddie Lampert's letter to shareholders and it's almost as if I was reading Buffett's letters [but with less humor]. One thing that stood out was Lampert's excessive use of EBITDA.

Lampert is currently managing a retail company. Does this means EBITDA is significant in evaluating retail businesses?

[/ QUOTE ]

Not necessarily. EBITDA provides one of several possible views of company earnings growth. Obviously if a guy is crowing about EBITDA he thinks it provides valuable insight. You'll have to evaluate the I,T,D, and A parts yourself to see if you agree with him.

[/ QUOTE ]
Do you know the differences in investing philosophies between Buffett and Lampert [img]/images/graemlins/confused.gif[/img]
Reply With Quote
  #4  
Old 11-28-2007, 11:50 PM
PRE PRE is offline
Senior Member
 
Join Date: May 2007
Location: Council Bluffs
Posts: 571
Default Re: EBITDA

For the companies I analyze EBITDA is one of the most important things to look at.
Reply With Quote
  #5  
Old 11-28-2007, 11:56 PM
SlowHabit SlowHabit is offline
Senior Member
 
Join Date: Apr 2006
Posts: 1,509
Default Re: EBITDA

[ QUOTE ]
For the companies I analyze EBITDA is one of the most important things to look at.

[/ QUOTE ]
Can you give examples of the industries they are in?

Or did you mean any company?
Reply With Quote
  #6  
Old 11-29-2007, 12:36 AM
PRE PRE is offline
Senior Member
 
Join Date: May 2007
Location: Council Bluffs
Posts: 571
Default Re: EBITDA

companies with a lot of assets whose book value of depreciation is nowhere near close to an accurate gauge of what the assets realistically deteriorate at.
Reply With Quote
  #7  
Old 11-29-2007, 03:37 PM
Groty Groty is offline
Senior Member
 
Join Date: Jun 2005
Posts: 254
Default Re: EBITDA

Legend has it that EBITDA became a popular metric when John Malone was trying to finance the emerging cable industry 40 years ago. He convinced TCI's banks that building out the cable infrastructure was largely a "one time" CapEx investment. He argued that after the "one time" CapEx investment is made, TCI will be rolling in cash, but GAAP earnings will be negative due to the huge depreciation expense. So negative GAAP earnings didn't reflect TCI's ability to service its debt. Instead, the bankers should focus on the positve cash flow being generated. The banks bought his pitch and EBITDA was born. To this day, the cable industry remains very capital intensive, so Malone sold the banks a bit of a pig in a poke. The story was told to me by the chief credit officer of one of NYC's largest banks that financed Malone and other early cable industry pioneers.

As for retailers, EBITDAR is often used to measure retailer's cash flow. It's calculated the same way as EBITDA, but rent expense is added. Analysts will often create an "adjusted debt" figure to include an estimate for the present value of minimum lease obligations.
Reply With Quote
  #8  
Old 11-29-2007, 04:24 PM
NajdorfDefense NajdorfDefense is offline
Senior Member
 
Join Date: Feb 2003
Location: Manhattan
Posts: 8,227
Default Re: EBITDA

Pls evaluate for me the investing prospects for: Comcast, Sprint, MCI, TCI, in the mid-late 1970s without using EBITDA or similar metrics. Or Mirage Resorts/Wynn years before their casinos actually opened and they had years of buildout and CapEx expenses.

When a company has no earnings and only real assets are some 'newly minted technology', or vacant unfinished building, what do you use?

http://finance.google.com/finance?client=ob&q=WYNN
OpIncome negative 2001-05 inclusive.
Reply With Quote
  #9  
Old 11-29-2007, 05:07 PM
SlowHabit SlowHabit is offline
Senior Member
 
Join Date: Apr 2006
Posts: 1,509
Default Re: EBITDA

[ QUOTE ]
Pls evaluate for me the investing prospects for: Comcast, Sprint, MCI, TCI, in the mid-late 1970s without using EBITDA or similar metrics. Or Mirage Resorts/Wynn years before their casinos actually opened and they had years of buildout and CapEx expenses.

When a company has no earnings and only real assets are some 'newly minted technology', or vacant unfinished building, what do you use?

http://finance.google.com/finance?client=ob&q=WYNN
OpIncome negative 2001-05 inclusive.

[/ QUOTE ]
Najdor,

Reading your request, I think I now *understand* why Buffett doesn't use EBITDA.

1. He doesn't like a company without real earnings; he wants earnings now, not forecast. "a bird in hand is worth two in the bush."

2. He also doesn't like capital-intensive assets. Over time, maintaining those assets and the risk of inflation are going to be tough for a business to be profitable.

3. The companies you gave me are too tough for me to try to evaluate.

Thanks! [img]/images/graemlins/cool.gif[/img]
Reply With Quote
  #10  
Old 11-29-2007, 08:19 PM
smbruin22 smbruin22 is offline
Senior Member
 
Join Date: Aug 2005
Posts: 2,524
Default Re: EBITDA

the answer is basically what someone already said....

it's just quality of information. and moderate adjustments.

my guess is munger doesn't like the fact companies have very negative earnings but then say their EBITDA is positive (or even better, positive on a pro-forma basis). my own guess is he doesn't like the shenanigans companies go thru to get to a pro-forma EBITDA....

Buffet and munger i think look more at cash flow, which is harder to manipulate. less chance to play around with accrual accounting and other non-cash items. cash flow isn't perfect either. but it's probably better.

lampert and co look at EBITDA but i would think they dig into the #'s quite aggressively and look at the quality of things.
Reply With Quote
Reply

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off

Forum Jump


All times are GMT -4. The time now is 04:55 AM.


Powered by vBulletin® Version 3.8.11
Copyright ©2000 - 2021, vBulletin Solutions Inc.