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To: Jan Crawley who wrote (4062)	5/7/1998 9:30:00 AM
From: Oeconomicus	Read Replies (3) \| Respond to of 164684

The New accounting term sure is catching... Actually, Jan, EBITDA (as opposed to "EBITDMA") is the best figure to use to judge and compare the cash generating capacity, and to value companies. That is, to figure "enterprise value" without distortions from differing capital structures, tax rates and depreciation policies. Net Income from one company to another, even in the same industry, can become an apples to oranges comparison if one is more leveraged or is less conservative in taking depreciation and amortization on its assets. That said, "cash from operations" may or may not be a meaningful measure as it takes into account changes in working capital accounts. A company that improves its collections of A/R or its inventory turns will show an improvement in cash from operations, but so will one that slows its payments to trade creditors. If these accounts maintain a consistent relationship to the growth of the business, cash from operations would parallel EBITDA fairly well, but EBITDA is still a better measure. Now, regarding AOL, 60 times EBITDA (IMO) is absurd. AOL may still be growing fairly quickly, but it is far from being a startup that has just turned EBITDA positive (which, along with some turnarounds, is the only time multiples this high might be justifiable). For some perspective, consider that in the heyday of cable company and TV/Radio station LBOs in the late '80s, EBITDA multiples started looking scary (to lenders) when they got into double digits (if I remember correctly, the richest deals might have gotten into the mid-teens). Remember, cable companies at the time were fast growing monopolies - AOL may be fast growing, but it definitely has serious competition. Bottom line, EBITDA measures a company's ability to pay for it's capital and to reinvest in the business. At 60 times EBITDA, those providing the capital aren't getting much of a return. Sorry, if you know all this already, for the lecture. Regards, Bob