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Pastimes : CNBC -- critique.
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To: Seeker who wrote (10954)6/27/2002 8:33:33 AM
From: Elmer  Read Replies (2) of 17683
 
To David and Joe:

I doubt that most viewers understand why certain companies are valued on an EBITDA basis and others not. The so-called EBITDA companies are usually consolidators in an industry that have grown through acquisition and used leverage to do so.

Because these businesses have very high interest expense and amortization of goodwill charges, they seldom show, on a gaap basis, any net income per share. Curiously, had these businesses been grown internally without acquisitions and equity been used to fund growth, the exact same business would show positive income per share.

So, EBITDA is simply a measure to look past the accounting fiction associated with acquisition accounting and capital structure.

One reason EBITDA companies are falling in price, which should be pointed out to your viewers, is that they are more leveraged and more risky than their unleveraged counterparts. I believe this explanation would be more informative.

Thanks
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