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Pastimes : CNBC -- critique.

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To: Gamma Positive who wrote (10965)	6/28/2002 11:40:06 AM
From: Elmer	Read Replies (2) of 17683

Thanks, Maria cited Warren Buffett this morning in his response to a question at his annual meeting concerning fraud. Buffett made a comment that upon first view suggests that managers who use EBITDA as a value metric are crooks. This has gotten silly and reflects a guilt by association mentality that Maria brings to her journalism. I doubt that she has a clue about the issues here. EBITDA companies are highly leveraged. Accordingly, the managers are betting the company in the expectation that if they grow the business, fixed costs will be covered, and the marginal profits will increasingly accrue to the equity holders. There is nothing about this that makes these managers crooks. The only connection that I can see in Buffett's logic is that when times get tough for these companies, which can happen when you are highly leveraged, they may be more tempted to violate accounting rules than managers in unleveraged companies. This is what happened with WCOM. Maria would have us believe that Warren Buffett thinks EBITDA companies are the refuge of thieves. This is another illustration why she is out of her league and should stick to reading a script.

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