"EBITDA is misleading or difficult to compare in some industries."
Yes, EBITDA is really only a realistic metric for Industrial type companies where you can do the following Calculation :-
EBITDA = Turnover - (CoS + SG&A + R&D).
In such companies CoS and SG&A can be regarded as "Compulsory" Expenses, which cannot be avoided. Therefore, I would say, it is a useful "comparing" metric with other companies who have similar financial reporting.
As a result, a useful comparable metric, IMO, is the ratio of EBITDA/Turnover which gives one a good idea of how much of Gross Turnover or Revenue is left over after having been absorbed by Compulsory Expenses that also affect other like companies.
Putting a percentage target to such a metric is, IMO, a useful calculation, and follows the company valuation principle that Buffett uses.
In other words, one may only consider buying shares in a company that has an EBITDA/Revenue ratio greater than, say, 15%, or whatever ... |
