Charlie Munger: 'Every time you hear 'EBITDA' substitute it with 'bull**** earnings''
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- Опубликовано: 26 сен 2024
- Warren Buffett and Charlie Munger speaking at the 2003 Berkshire Hathaway annual meeting.
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If you think EBITDA is BS wait until you see "Adjusted EBITDA". It typically comes very close to Buffett's "Let's just put sales as net profit and all expenses in the footnotes".
Classic Munger! No BS filter. Wish we had more people like this in Finance.
The whole field is BS. Read “Bullshit jobs”, great book
@@erikanderson1402 Finance is really about decision making.
@@Aengrod name a single applied subject that isn’t about making decisions.
@@erikanderson1402 it's a bullshit book
@@redhidinghood9337 it is a great book actually. And it was way ahead of its time actually.
This should be titled: ‘How not to ask a question.’
I as thinking this same thing... "and also... and also... and also..." Ask one thing and ask it clearly, everything else will be ignored.
...lol, clearly you are not a fan of symposium Q&A. That's usually what it is. 🤣
Interesting because I thought the exact opposite
I have a huge IQ and I appreciated this very intelligent question.
Maybe your brain got tired because your IQ is inferior to that of the guy who asked the question ? 😎
P.S.: neither Buffett nor Munger made fun of the question.
haha my thoughts exactly. There is no such thing as a dumb question? Well, that was a dumb question!!!
Didn't Charlie Munger and Warren Buffett invent the strategy of buying/investing when the market is low and also buying/investing when the market is high? As Warren Buffet said, he has seen this happen many times in his life. Not an investor. My wife and i never earned more than a middle class salary. We plan to get retired at 58 with a stock portfolio worth $4M. We have never sold so much as one share of stock...
It really isn’t about how much you save, it’s about how you manage your money. Whether you work to earn income or invest, it still boils down to income vs expenses, so yeah you may look into financial advisors for a strategy that suits your timing....
i've been doing this same thing myself. Can't get into trouble with the IRS when I have no income and all my money is in stocks. I don't like doing the work though. Lol. So I just invest through an advisor who does the stock picking. My money grows, and I'm tax-free...
@@martingiavarini Do you mind sharing info on the adviser who assisted you? been saving for pension since age 18 - company scheme. along the way I hit higher tax, so I added to my company pension with a SIPP (tax benefits) I'm 46 now and would love to grow my finance more aggressively, there are a few cars I still wish to drive, a few mega holidays, etc
@@hermanramos7092 Have you heard of‘’Catherine Morrison Evans’’ ? She gets featured regularly on CNBC. I myself use tax-deferred accounts to hold my investments. That way I avoid capital gains taxes. There are other options your advisor could brief you about....
@@martingiavarini Thank you. I just checked her out now and I've sent an email. I hope she gets back to me soon. I've been thinking of doing this for a long time now, and I've procrastinated enough already.
5:39 is when he says
Depreciation is usually understated because if you are buying equipment, inflation will make it more expensive next time you buy the same peice of equipment.
Big oof. Never considered that, but you're right.
Can you go more in depth with that explanation. Understated in a good way or what?
@@thegreat9481 Bad for overall profitability. In general it is more expensive to replace equipment/buildings in the future than today, it was usually cheaper to replace equipment/buildings in the past. Everything except land (and some buildings) has a useful life (which expires).
@@Aaron_R Ok so we are on the same page you’re saying depreciation is a drag on profitability
In the case of deflation, it makes the existing older assets have a higher depreciation expense relative to the newer (and cheaper) assets
RIP Charlie - you were a class act and a man of few words. When you spoke, we listened.
“Somewhere between crazy and crooked.” Great line that sums it up.
This is fascinating. I qualified as a (U.K.) Chartered Accountant in the year that this was recorded. In the intervening two decades I’ve covered the question of EBITDA, I’ve done market-leading work on pensions accounting and US OPEBs and I’ve also been involved in stock option accounting under IFRS2.
It’s amazing how prescient these two guys were. They were bang on and I’m pleased to see that I’m not the only EBITDA skeptic out there.
EBITDA is not a GAAP measurement required by the accounting standards.
Accounting standards are bs
@@Aengrod - then you very clearly don't understand them
Did you call him prescient on purpose? We call him the oracle of Omaha lmao.
@Harvey TR Hi, have you published any works or could you point to a public place where I can read about your thoughts on PBIT? I am an accounting student (UK) too and will be very interested to learn more about this.
Thanks.
Asking multiple questions at a time is a pandemic of our current time. It's like the interviewer believes they will never be allowed to ask another question for all eternity, so better take your best shot now. No one in their right mind can remember 10 questions long enough to answer them all. If I was the one taking questions, I would never allow more than one question at a time with a maximum of two follow-ups.
They are not wrong. You only get one question, which is why they should think long and hard and only ask the best question
Agreed. I don’t think interviewer is doing the interviewee or the audience any favors with multiple questions at once.
I was thinking the same thing. Props to WB in the answer though.
They aren't wrong . One chance and you're out
That was his opportunity to show that he was the smartest guy in the room.
Every time I see these two speaking at a BH AGM it's like a masterclass in economics.
Ya suprising more people don't listen
and it seems that no question can get them puzzled. It looks they were always composed and effortless.
@@stephenw4720 I think it's because they love what they do, so they immerse themselves in it. Also, old af.
Dude asked like 20 detailed questions at once. How can they keep track to answer all those lol
probably because, to them, these questions are usually linked together so often that it's not hard to remember and discuss all of them
Yeah. So often, people can't even get the basics right. Ask your bloody question succinctly and shut up.
They may have the questions in advance
The very question is how they view earnings
Honestly, I heard it as all one question. It’s “how do you think income should be reported? What counts, and what doesn’t?” The long-ish question breaks down lots of examples, and holds out one commonly reported metric, “Income Before Income Taxes, Depreciation, and Amortization” (EBITDA), but it’s all about what’s really part of income and what’s not.
The most important thing that should be on everyone's mind currently should be to invest in different sources of income that doesn't depend on the government. Especially with the current economic crisis around the word. This is still a good time to invest in various stocks, Gold, silver and digital currencies.
I have been investing in stocks for over 10 years now and I have made a lot of money. My portfolio has grown exponentially and I can't thank stocks & ROCHELLE DUNGCA-SCHREIBER enough for such an amazing way to make money!
How can this person, ROCHELLE DUNGCA-SCHREIBER be reached please...
Wow! I just looked up this person out of curiosity and I'm super impressed with her qualifications. Thanks for sharing.
Refreshing to hear someone who not only know exactly what they’re talking about, but calls the shady practices of many businesses out as what they are: film-flam business. Think PG&E and the depreciation savings that decimated the lives of thousands of California families for the sake of high profit.
I've been to Omaha to attend a couple Berkshire shareholder meetings and i watch the the live coverage every since they started streaming it live. I always anticipate Charlies response! His comments are my favorite's.
These two are national treasures !! Love Charlie no BS no filter
Yeah, except he pushed the covid vaccine.
I cannot respect him for that.
I retired at 34 with $47m and three houses and 18 grandchildren.
They’re only human. There’s some things they don’t talk about and could.
What Charlie is saying about pension plans is absolutely 100% true > what companies do is they hire an accounting firm ( that also includes executive compensation packages for the same company ) and build themselves a Chinese wall between the PBGC and the company and they use actuarial assumptions that are absolutely false and very misleading . Pension plans should be run basically with fixed income however companies use actuarial assumptions and investments that are in no way design for widows and orphans . The PBGC does nothing to stop these companies especially around the year 2000 to 2006 to stop companies from using actuarial assumptions that are not fiduciary responsible ! I am so glad that Berkshire Hathaway understands this principle when Charlie says companies have understated pension plans that’s extremely intelligent and insightful on Berkshire Hathaway’s part .
Really interesting comment
@@ILubBLOfficial you are right !!
Damn, I'm 20 right now and I just read your comment. Lots of words that I don't really understand. I've got a lot to learn it's scary...
@@Unknowledgeable1 > make sure that your plan is a
“defined contribution plan “
that is in “ your name “
that is your best protection Lucas !
@@robertlee3805 thanks for the simplification and marking out the key terms for me!
Yes. When I run a financial analysis for a business, I look at (4) metrics: liquidity ratio; leverage ratio; debt to equity; return on equity. That is all I need to know to understand the financial health of a business. This will tell me how much capital the business returns to its shareholders, and its cash flow. Also, I always remove goodwill from its equity and add in any owed tax liabilities to its overall debt.
liquidity ratio and leverage ratio in respect to what ? Im not finance saavy lol
@@subdiplomatic the companies balance sheet
@@sassysilver4451 oh thank you
What about acid test?
Also personally I don’t really like Return on Equity because it uses the income. So for many companies that run like Amazon on cash flow, I can’t get any real data from this metric. So I look a lot at the cash-flow instead. What about you?
@@andrejhoransky9932 Good feedback. The ratios mentioned above, at least to me, and as you mentioned, provide a snapshot of the company's financial health. With that snapshot, I can infer how much leverage a company has and if they have healthy cash flow, and return that cash flow to investors.
From there, then I would assess the qualitative measure. For instance, its managers, their experience, and its governance. Also, the business itself, how it is positioned in the market, what the reality is that it can increase sales, and its exposure to various market forces etc.
Also, I assess if the company pays a dividend, and does it grow that dividend consistently, which generally indicates an intelligent use of capital and respect for offering more value to shareholders.
Also a difference in evaluating a stock for purchase, then if you were buying a physical company. These metrics above are a good way to analyze the financial health of a company for stock purchase, but I would go quite a bit deeper if I were purchasing a company.
I remember looking at an equipment hire business that added back the cost of their equipment purchases with a straight face. 50 million ebitda with 52 million of depreciation
That takes add-backs to a whole other level lol
Quite amazing when some CEOs complain to analysts that their company is undervalued in terms of Price Earnings Ratio when the only word you read in quarterly reports is EBITDA and you know the business is bleeding cash.
This is the strength of this country, where right in the midst of glitz and hype there is whole lot of sense and you have to do your due diligence to find it. Imagine all those people AKA Madeoff generation who invested with a guaranteed return hence got attracted it where they could have bought BH shares !!
Like most successful comedy teams, the Buffett and Munger act is based on basic truths ignored by most.
ESG is the next wave of BS earnings claims, now its all about social score.
what does esg have to do with earnings? you're talking about triple bottom line?
@@sleepless2541 ESG is the new EBITDA, basically adding virtual value to the bottom line based on social compliance and virtue signaling.
'It's amazing what people with high IQs will do to rationalize their own pockets big.. people's ego getting involved with their own records"
So many clear cut assessments, more relevant than ever.
When I sold my business, the buyer offered three time EBIDTA or one year’s gross. Those numbers were identical.
You sold your business for one years gross?
Yes. But I was also a C corp, which made the tax liability minimal. Retired after the sale at age 44.......twenty years ago. Still haven’t touched principal.
@@surferdude44444 was it a low growth company?
@@surferdude44444 wanna be my suga daddy
@@noewell9870 Most restaurants are worth about 1/3 their sales. A 1 million dollar a year restaurant is worth about 333,000-350,000. Assuming a 10-15 percent profit margin. Worth more if it's multiple restaurants with same branding and near other locations. The ability to transfer managers/employees makes them more valuable.
EBIDTA might as well just be called Gross Income. About the only thing it proves is that product is moving (and even that can be deceptive). It’s the Net that ultimately matters.
I worked for a non profit they would make us go to staff meetings in a movie theater.than various employees or corporate people would do dances and skits while explaining financial stuff .the one skit that always stuck I'm my head was the EBITDA dance . This was back in the early 2000s and the non profit is still going strong .
I could listen to theses men talk all day. What they say is what they mean. " no footnotes"
Always read the footnotes first. Amazing what they hide in them. More amazing is how "Analysts" don't look at them.
Real analysts only read the footnotes
EBITDA=We have a factory etc, it makes things, let’s ignore the fact that we paid money for it, and that eventually it will wear out and it will be worth zero.
...also let's ignore that we pay interest on the loan we took out to finance that factory
EBITDA never made any sense to me. Who cares what your earnings are before many of your expenses, the important part is your total net earnings after ALL expenses. Nothing else actually matters. Excluding some random subset of your costs is ridiculous.
Thanks...you made me understand what EBITDA IS.
EBITDA is a starting point, not a be-all, end-all that shifty CEOs and COOs stress. It can indicate that at least they move product/service, but Net is the bottom line. There’s a lot of waste and “surprises” that can be hidden somewhere between EBITDA and Net.
Some reasons for lousy accounting: Bonuses, Country Club Memberships, chauffeured car and eventually....golden handshake. To get this good stuff you want good earnings so you can keep Wall Street happy. Make sure your audits are being done by someone who likes you. Make sure you have a lot of footnotes in tiny print if you must talk about anything icky like unfunded liabilities.
@1:02, shows great constrains of not interrupting other people. Respect someone who still checks his own ego.
I want them on Lex Fridman
Paulie Walnuts taught me about EBITDA.
Literally took this guy a minute and a half just to ask a question 💀
Charlie must be the worlds greatest BS detector to have ever lived. You are NOT going to get anything past him
Oh but you will . No one is infallible.
@@aleksandarnedeljkovic8104
You seem unusually confident in your ability to make believable bullsht up.
32 years ago i started investing just like them and the strategy works. fuck ebitda and fuck technical analysis.
Understating future pension and holiday
liabilities is something I've seen.
My dad was an old school Deloitte guy....he always said everyone use EBITDA, but what if your interest rate is 55%...Net Profit is what you put in your pocket...
2 SMARTEST FINANCIAL MINDS IN THE WORLD...👍
The question is too long. Cap-Ex is never free so depreciation should never be omitted.
I think I like Charlie Munger more and more of late! 🤣
My former company GST Telecom became EBITDA positive, earning the CEO a million dollar bonus, the month before they filed for Chapter 11.... EBITDA IS bullshit.
Spot on! EBITDA only shows that the company is bringing in money (or seems to be); it doesn’t mean the company is profitable or run properly.
There is only one number that matters- net profit to sales- how many pennies out of every sales dollar is a company putting into its pocket- that's the beginning and and ending a of all business accounting.
Bingo! Any method that excludes any of your expenses is just lying about your profitability. I don't care how much money you bring in, if you have to spend more than that amount to make it you're in trouble, even if that "more" happens to be depreciation, or interest payments, or taxes. What the cost kiss doesn't matter, all that matters is that it exists.
As an Accountant, I agree with Charlie and Warren.
By far one of the wisest statements from Charlie. A Teenager’s Guide on how to Invest Like Warren Buffet and Charlie Munger shares his investment wisdom.
This is funny. I used to work for a fintech in the UK years ago and before I joined I thought the people there were really smart because all you ever heard on the news was "fintech" "fintech" "fintech" then I started working there and realised these people aren't that smart and have very basic financial understanding as they made the vast majority of lending decisions based on EBITDA
Imo, EBITDA is fine, it just isn't a good metric depending on the business.
I kinda expected the video to be about how Depreciations are bullshit, calculated out of a table of stuff that isn't real. Imo Depreciations has more to do with tax optimization than anything else.
Sure EBITDA can be shit, if the company is full into big loans too. But like I said, it really depends on the field and type of business
@@user-xl5kd6il6c - kind of, and I think you've misunderstood how Depreciation and Amortisation works
Both MUST be included in your earnings as they cover incidental losses on capital; Depreciation on FA covers maintenance costs "as a median"
Taxes should ALSO be included, as they WILL have to be paid
Running off EBITDA is ridiculous as it doesn't mean you're profitable or not
@@danielcrafter9349
Depreciation is full of magic numbers that most of the time, aren't even close to reality.
Amortizations, kinda depends on how the company deals with new loans, and if that usually shifts a lot.
Taxes "WILL" have to be paid, depends highly on the business, renegotiation of taxes and benefits that reduce them are a thing, and aren't always that similar between companies in the same field.
EBITDA is a tool to compare companies, it doesn't mean that what was excluded doesn't need to be paid. Everyone knows that, it's in the name
@@user-xl5kd6il6c Agree completely. In some industries, EBITDA is absolutely a legitimate metric. In other types of industries, it is not. Buffett and Munger make no distinctions here, which is incorrect in my view.
Lending decisions are a bit different from valuation decisions though, right?
00:08 Charlie Munger argues against using EBITDA as a measure of business performance
01:27 Goodwill amortization is not an economic expense and is ignored in Berkshire's own calculations
02:34 Depreciation is a real and important expense in economic analysis
03:45 EBITDA can mislead investors and cost them money
04:45 Depreciation is a real cash expense, not a non-cash expense.
06:00 Accounting troubles are understated, especially regarding pension funds and medical liabilities.
07:08 Charlie Munger critiques the practice of not recording cash bonuses and expenses in the income account.
08:01 Charlie Munger criticizes the denial of option expense reality
All my CEO and CFO talk about is EBITA and employee stock options…
hmm…
add other expense factors such as property damage to the bills that are accounted for by "ebitda" and it seems like they're talking about the difference between gross income and net income.
I can't think of any legitimate justification not to count depreciation as an expense. How else would one match revenue to expenses?
This is mostly applicable to investable businesses. An example where it's more applicable is a DTC drop shipper where they are really just making a cashflow business for themselves. It's a profit farm that won't exist in 1-3 years but that's by design. You wouldn't invest in that business but you may run one for a period of time. Either way, not an investment thesis
These two remind me of Statler and Waldorf.
This is just what I learned at Georgetown Business School in 1968. God knows what they teach now.
Guys, Charlie Munger is speaking. Time to send the kids to their rooms
?
@@jean-luclewis7762 He tends to be very blunt and direct with his answers, so much so that the sometimes contain profanity
Some people use an opportunity to ask a question to show off everything they know. Go get your own platform.
I couldn’t agree with him more. I worked at a place that would always talk about EBITDA and I’d always say what was our net profit per share? Just blank looks. I just left that place before they went bankrupt. I just don’t understand the shell game accounting. Imagine trying that with your own finances. “What did you make last year?” “Well, before I paid interest on my debt or paid any taxes i made this much” 😂. “Oh yeah, I also had some other stuff that took away from my net income but I don’t include that, even though it impacts the bottom line.”
"before mortgage payments and car loan payments I made a great bunch of monies"
EBITDA is fine when used to examine capital efficiency, asset performance or to examine if debt and liabilities are increasing.
DD&A depreciation, depletion and Amortization is mandatory metric on 10k for oil reserves
Did anybody else lose track of the question before the person asking finished it? Jesus that was painful.
Someone needs to lift these silhouettes, dub it, and reuse as muppet show/mystery science theater commenters. These two are just better than fiction!
The questions asked in these things are horrible, but these guys are good to answer in full and let these yahoos ask their self-aggrandizing question
Just ask the execs from Waste Management if you should deflate your depreciation.
ROIC is their metric
Anytime when someone asks a long question, it’s most likely that they don’t know what they are asking.
Hello sir I have a 12 part question
It REALLY helps to play this video at 1.5X Speed.
You're welcome !!!!
Finances is the toughest language I've ever not learned
Accountants are like lawyers. There are plenty of good honest accountants but enough of the other type to give the whole profession a bad name.
Why do these people always feel the need to make their question a thesis?
He just asked about their opinion on ebidta… one sentence.
Completely super annoying...
Because it provides context for those in the audience
@@philipk4475 No the correct answer is: narcissm....
Someone show this to Homelander
EBITDA as a standalone figure is of course very limiting and tells little to nothing except maybe for scale for the exact reasons both are touching upon. I have to agree (even as an accountant and even a financial officer) it's emotional work to put e.g. depreciation in the open where it hurts and you're doing many a people a great favour when you don't. I think that's a big part of why this whole spectrum of rose tinted to outright delusional readings of (in and of themselves complete) balance sheets happens even among people who should be diligent and know better.
I love how these guys cut away the fluff and shiny objects to get to the real numbers which usually involve cash flow and long term thinking.
I worked at a company that cared alot about EBITDA, they are no longer in business.
Although these guys are well educated, they apply common sense analysis.
Why should the two be so different
@@user-ty2uz4gb7v I agree, they shouldn't, in fact most people lack common sense. My point is that you don't have to go to Yale or Harvard or even have a college degree to apply their way of thinking. Peter Lynch use to go the the mall with his kids and see which stores were the busiest, he determine that they were going to be the most profitable. Go figure.
@@gorillatrader2339
Wouldn’t Peter be able to get the same information over a broader time period from reading that business’ reports?
@@gorillatrader2339God I love lynch
How to cook books and pass it off as legit? Ebita!
They should let Charlie talk more!! Love that guy!!
Nah, he only needs to say a one-liner every now and then and it carries a ton of weight.
Yes but he didn't answer the question. What are the alternative kpi and ratio to evaluate a company?
Wouldn't that make you miss out on companies like Amazon and Google in the past
Good question - I guess so. I also guess that depreciation doesn’t really exist for software.
It’s weird what kind of conpanies Amazon and google turned out to be. Their core business was heavily influenced by network effects and not actual finances I think. Seems like a different type of investment
I think amazon and google don't have very much fixed asset to begin with, and so depreciation is a very insignificant part of earnings. Even for software companies though, I think depreciation should still be counted, since their servers and stuff will break down over time and require replacement.
The point of these high growth companies isn't really whether you count depreciation as an expense (which I think you should) - it is the future growth potential of revenues and profits with very little incremental capital investment.
You would also missed out all the companies with bogus accounting that subsequently languished or even blew up. So, pick your poison.
@@billykhoabillykhoa7844 I'll stick with EV/EBITDA over P/E as a valuation metric everyday of the week
Yes.
Post-retirement liabilities is also incredibly interesting, fiscally!
Why cant we just have earnings where E= after interest, taxes, amortization, and depreciation?
How anyone could include Goodwill in accounts is beyond belief
Goodwill is the most complex thing in business to analyse. If you have an eye for it then you will be very successful.
“Goodwill” does matter when a long-established company has a reputation, but even then it’s difficult to quantify. Goodwill is almost meaningless in marginally successful or failing businesses.
@@JBM425
It can be valued if you know how to do it but you are not going to be able to do it in every business sector.
EBITDA is usually just used as a proxy for operating cash flow generation. Its an easy tool for investors to forecast future cash flows the business will be generating from its operations. Capital expenses are another separate issue and will most likely be considerably more than the annual depreciation figure. Goodwill impairments are not irrelevant and are based on cash flow projections. They throw a light on issues arising from acquisitions that will affect future cash flows available for dividends also.
@Shill of [insert_personal_Boogeyman] Why then is the title: "Every time you hear EBITDA..."?
Your 2nd sentence is wishful thinking. “future cash flows”? 😂😂. Ok so capex and debt service do NOT affect cash flows? If your point is “future” then also wrong. What if they have capex and more debt in a subsequent year? You seem to understand acctg but clearly do not understand that many investors don’t understand these realities which is what WB is suggesting here
@@nnjjee1 Capex does affect cash flows but not opex, which is why it is used as a proxy for operating cash flow. Interest is irrelevant for this conversation because EBIT excludes it as well, which WB does like to use.
There's value in this criticism of accounting practices, but the irony is that both men use accounting as a fig leaf on moral flim-flam. They excuse the fact that much of what they've financed is morally objectionable because "the numbers made sense" and people think they're great because they're rich.
They're opposed to EBITDA, but they're champions and beneficiaries of EBE: earnings before externalities (or perhaps: earnings before ethics).
People like these two not just because they are successful but also because they have avoided the especially shady stuff and openly share opinions other investors don't.
Saying "the numbers made sense" is simple honesty, they don't pretend to have been tricked or claim to have been 'too deep into the company vision and wanted to join the family' or some other BS.
ESG: allow me to reintroduce myself. lol
I cant unhear Paulie describing EBITDA.
I trawl through company presentations and sometimes see NPAT in the summary. If I have to search for it then I conclude they're being evasive. Such tedium to wade through.
What about micro bottom up investing ergo Oaktree?
I’ve always thought of EBITDA as just gross income.
Pension liability is INSANE.
All organizations should sunset pensions for new employees and pay to an equivalent employee match on a 401k or other retirement account.
Limits the long term liability and provides the responsibility/freedom to the employee to manage their own retirement investment.
Cool idea unless you're an employee. Late 80's phased out defined pension plans.
75 second question… geezz
These two guys are both brilliant and funny as hell. The modern day Laurel and Hardy. I would love to do a one year internship (unpaid) to be able to work side by side these guys. The knowledge gained would be worth the lack of one years pay.
The first thing you would learn is to not work for free :)
Last time I checked people were willing to pay thousands just to have a lunch with Warren so think you’d have to do a lot better than just work for free…
@@m0ltipleX2000 Free is relative. You pay to go to university but I bet an internship under Warren and Charlie would teach you far more practical knowledge than any uni course could hope to offer
@@pupperfaust8547 Well.. I did not pay anything for my masters degree. But im from Norway, where we also learn to not assume things about people :)
@@pupperfaust8547 facts
I'm surprised by how they assume people value businesses on an Ebitda or a US GAAP accounting base.
The reasons we use EBITDA or US GAAP accounting are definitely not to price these companies. EBITDA is used to try to compare businesses in different geographies and with different capital structures. Therefore anything that would depend on any of these two, are left aside. This doesn't imply these are not expenses, it just makes it easier for you to then see how it would be paired against businesses that are under different tax regulations, depreciation schedules, or capital structures.
And US GAAP is regulated to a degree with a tax accounting and general 'one rule applies to all' mindset. Which doesn't mean they don't provide information, it just mean that information is a poor proxy of company value or future cash generation.
In the end I'd think anyone with half a neurone would realise you need to properly evaluate the business and get an accurate idea of how much it's worth on a basis of how much cash it should generate in the future.
EBITDA is useless for comparing companies. It is only useful when you are considering a companies capital performance or asset performance.
GAAP has its place, though. If companies can pull a “fast one” even under GAAP, it’s like the Wild Wild West when they don’t follow GAAP.
Ok, I’m stupid. But how can anyone doubt that depreciation is an expense. Of course there are rare exceptions, but in the real world the value of an asset goes down with age, and then the cost to replace, proves it’s an expense.
Support product free rate in borrow six?
In another 50 years people will still be watching this. Where there is a big pile of cash, there will be "experts" creating new forms of wealth vacuum cleaners and inventing complex mnemonics to make them sound authentic.
My ex-wife said most of my tangibles are arbitrary too. I depreciate that...😅
Bonus depreciation isn’t reflective of real economics
They're like the two old Muppets in the theater bit.
Fantastic..I love these lads..
well now we even have adjusted EBITDA lol
pretty confused what to do about all these reporting failures