Why Charlie Munger HATED EBITDA

Поделиться
HTML-код
  • Опубликовано: 23 ноя 2024

Комментарии • 152

  • @BrianFeroldiYT
    @BrianFeroldiYT  3 месяца назад +8

    Thanks for watching! Grab a free PDF copy of Bufett's Financial Rules of thumb here: longtermmindset.co/buffett

    • @RobinKeck-i2b
      @RobinKeck-i2b 10 дней назад

      And spell Buffett correctly please.

  • @robkennedy5906
    @robkennedy5906 3 месяца назад +55

    Also, EBITDA does not consider working capital requirements. A company can make lots of earnings but be illiquid as they do not have the cash required to operate.

    • @BrianFeroldiYT
      @BrianFeroldiYT  3 месяца назад +4

      Good point

    • @girish-d9p
      @girish-d9p 25 дней назад +4

      That's the reason u always look at the cash flow statement

    • @brians1225
      @brians1225 23 дня назад

      thats why EBITDA is just a proxy for operating cash and you layer in working capital after to adjust for free cash flow....

    • @ApriliaCollector
      @ApriliaCollector 9 дней назад

      Correct! Most commen made fault in Entrepeneurship, under estimating the cashflow, ending up in more debt…😊

  • @davidreichert9392
    @davidreichert9392 Месяц назад +79

    I first learned about EBITDA when the CEO of my company used it in a presentation. For the life of me I couldn't understand why people would want a number that ignores expenses. Seemed to me like a dodgy way to overstate profits. Turns out my instinct was right.

    • @BrianFeroldiYT
      @BrianFeroldiYT  Месяц назад +6

      Yet sooo many companies still use it

    • @thenoodlebuddy
      @thenoodlebuddy 27 дней назад +5

      Yeah it's just a way for highly leveraged and risky companies to make themselves look like they're doing well. Then they start using adjusted ebitda for those companies that are struggling to even make ebitda look good!

    • @aisolutionsindia7138
      @aisolutionsindia7138 26 дней назад +2

      it actually makes sense because depreciation is not a cash expense, it is generally not normalized to market cap but enterprise value.. enterprise value is like what market cap would have been in the absence of debt and cash.. however, in the long term cash flows converge to nopat, and eventually, cash flow is the king

    • @timothyharshaw2347
      @timothyharshaw2347 24 дня назад +1

      It's not that much different from when any lender or Landlord asks and only cares about your Gross; not your net after deductions/expenses

    • @brians1225
      @brians1225 23 дня назад +4

      It also gives you a general proxy for operating cash by removing non cash

  • @bacchuslax7967
    @bacchuslax7967 Месяц назад +10

    Specifically says it does NOT complain with generally accepted accounting principles. Yet people go straight to it. Might as well say we’re hiding the debt but it’s still profitable

    • @kumark214
      @kumark214 5 дней назад

      Evitda means nothing without cash flow statement.

  • @vincentf.2317
    @vincentf.2317 3 месяца назад +14

    Actually, I knew that EBITDA is widely used, and that both Buffett and Munger disliked it, always wondered why. Thanks for the clarification!!

  • @MillsOn2Wheels
    @MillsOn2Wheels 16 дней назад +2

    This is why EBITDA is not looked at in a vacuum. You would do a quality of earnings analysis focused on EBITDA in addition to working capital analysis and debt and debt like analysis to get a more full picture

  • @randrothify
    @randrothify Месяц назад +13

    I agree with Munger. Yes, EBITDA allows you to compare companies with different capital structures, but it does so without accounting for the fact that different businesses have different capital expenditures and working capital needs. EBITDA is a terrible metric for companies that constantly have to reinvest in plant and equipment or R&D just to keep their businesses competitive.

    • @BrianFeroldiYT
      @BrianFeroldiYT  27 дней назад +2

      I think Munger’s logic is sound

    • @RayRose-wp4is
      @RayRose-wp4is 2 дня назад

      @@BrianFeroldiYT
      straight to the point.

  • @johnwasilenko170
    @johnwasilenko170 3 месяца назад +5

    Great summary of why Wall St sell side uses EBITDA for specific industry stock price valuation and targets while long term investors should be quite skeptical of this ploy

    • @BrianFeroldiYT
      @BrianFeroldiYT  3 месяца назад +1

      Thanks for watching

    • @kumark214
      @kumark214 5 дней назад

      I doubt wall street uses ebitda for valuation. It’s one metric. But valuation is generally done using dcf.

  • @osunaedgar
    @osunaedgar Месяц назад +8

    Well explained..! IMHO the background music becomes a nuisance after a while...

  • @clementgavi7290
    @clementgavi7290 20 дней назад +1

    EBITDA means Earning Before Interest Taxes Depreciation and Amortisation. In French it is called EBE in other words Excédent Brut d’Exploitation. EBITDA refers to figures from the Income statement. It is the result that shows the real operating efficiency. In accounting terms only accounts of classes 6 and 7 are concerned.

  • @mikebaxter247
    @mikebaxter247 28 дней назад +1

    Motivation is key to understanding, banks like EBITDA so they can lend you more, they also use financial covenants to manage debt loads. As a rule of thumb, it youre doing well with net income youre growing your bank account!

  • @mahmoudghoneim8004
    @mahmoudghoneim8004 27 дней назад

    Both measures are useful in my opinion because every business has two legs one is operational and the other is financial, as a long term investor you should check each separately before taking a decision.

  • @jjcooney9758
    @jjcooney9758 22 дня назад

    Always agreed with him. Good principles

  • @raedaljowdah9364
    @raedaljowdah9364 17 дней назад

    Excellent explanation. Deserved a 10x likes. A bit too fast for a subject that makes you think while you talk.
    I would've loved to see more on the worked out example.
    Pls do the same for key financial ratios.

  • @djfghwetrysdfg
    @djfghwetrysdfg 25 дней назад +1

    earnings and free cash flow are better then?

  • @MaksimSSM
    @MaksimSSM 9 дней назад

    Good explanation 👍

  • @bryanwoods5709
    @bryanwoods5709 3 месяца назад +2

    Absolutely great overview of EBITDA

  • @richardgordon
    @richardgordon 3 месяца назад +1

    Really love videos like this! Interesting, informative and clearly explained 😊

  • @DavidBoothroyd-e9o
    @DavidBoothroyd-e9o 13 дней назад +1

    EBITDA may be hated for certain reasons. However, it can be very important in some situations. In some cases in Europe, you can only claim tax deductions on interest of 30% of EBITDA. This stops people financing a company with high intra-group loans claiming high tax deductions on interest. When buying a private company, you want to see what the EBITDA is so you can see how profitable a company may be without interest and taxes which can be different depending on who the owners are. So be careful before you think that Charlie and Warren are always correct in every situation.

    • @BrianFeroldiYT
      @BrianFeroldiYT  13 дней назад

      Sure. This video is meant to be more of an overview.

    • @RayRose-wp4is
      @RayRose-wp4is 2 дня назад

      EBITDA is a Revenue metric. Key point noted: A portion of interest payments may be claimed as a tax deduction.

  • @davidjimenez1670
    @davidjimenez1670 25 дней назад

    Best Finance video I have ever seen

  • @john44444
    @john44444 23 дня назад

    Awesome video, thanks for the upload!

  • @parmsingh9773
    @parmsingh9773 23 дня назад +1

    I’ve heard a lot of companies are starting to use EBIT( earnings before interest and taxes). Especially PE companies looking to acquire small businesses.

    • @BrianFeroldiYT
      @BrianFeroldiYT  21 день назад

      That makes more sense to me. Still far from my favorite profit metric.

    • @kumark214
      @kumark214 5 дней назад

      Not a great metric. Never gives you info on working capital and cash flows

  • @HudsonLighting
    @HudsonLighting 19 дней назад

    I recently learned about EBITDAC - essentially removing the impacts of Covid

  • @johnbatson8779
    @johnbatson8779 20 дней назад +1

    There is no correlation between EBITDA and a company’s free cash flow. Which is all that really matters

    • @BrianFeroldiYT
      @BrianFeroldiYT  19 дней назад

      Not a direct one anyway

    • @johnbatson8779
      @johnbatson8779 19 дней назад

      @@BrianFeroldiYT maybe an inverse correlation, every company with a high EBITDA and low cash is destined for the financial toilet

  • @MH_Bikes
    @MH_Bikes 3 дня назад

    Charlie was 100% correct, it's a waste of time.
    Why not have IBCOGS?
    Income
    Before
    Cost
    Of
    Goods
    Sold

  • @BonnieSKC
    @BonnieSKC Месяц назад

    Love it. Thanks from HK.

  • @illfunk1967
    @illfunk1967 2 месяца назад

    Great breakdown 👏🏽👏🏽👏🏽

  • @bonsai4322
    @bonsai4322 3 месяца назад

    Hey, Brian, can you do a video on why you have Cloudflair on a short leash? Appreciate you.

    • @BrianFeroldiYT
      @BrianFeroldiYT  3 месяца назад +1

      I think you mean that for Brian Stoffel

  • @sonofsarek
    @sonofsarek 28 дней назад

    Financing through debt shouldn’t be taken lightly. Far too many companies do this.

    • @BrianFeroldiYT
      @BrianFeroldiYT  27 дней назад

      Agreed

    • @jose91807
      @jose91807 24 дня назад

      Depends on the business but debt is cheaper than equity. if you have a business that has a constant cashflow it's better for them. The M&M research shows that really well

  • @mannyme2986
    @mannyme2986 18 дней назад

    Is not what you make.....is what you keep!!!!

  • @patusoro4781
    @patusoro4781 25 дней назад +1

    I would like to help the company I work for, allowing them to pay me 10 years up front... then they can amortize it lowering expense and make huge profits.
    Win-Win!

    • @BrianFeroldiYT
      @BrianFeroldiYT  24 дня назад

      lol - yup! This is a great reason why including operating leases as debt makes no sense to me

  • @muhammedrahilck4651
    @muhammedrahilck4651 14 дней назад

    Ever heard something like cash flow statement
    Nobody value a company based on its EBITDA

    • @BrianFeroldiYT
      @BrianFeroldiYT  14 дней назад

      Umm….. have you ever heard of private equity?

  • @bossntetainment
    @bossntetainment 18 дней назад +1

    The definition for depreciation you used is really wrong. You should not teach this if you define inflation the way you did… it is a reduction in the value of an asset over time, due in particular to wear and tear.

    • @aravin11
      @aravin11 16 дней назад

      What he has used is correct. Slowly the interpretation changed to what you are mentioning. But both are still the same.

  • @m_c_8656
    @m_c_8656 Месяц назад

    Wut he like den? Do he go wit operational cash flow, free cash flow ?

  • @azulsimmons1040
    @azulsimmons1040 3 месяца назад

    Interesting history lesson.

  • @kevinfrommheaven
    @kevinfrommheaven 18 дней назад

    very interesting

  • @David-nx2vm
    @David-nx2vm 27 дней назад

    Your example of the two companies and how they are financed is a great illustration of why EBITDA sets off alarm bells. I retired from a company that started including EBITDA in quarterly earnings reports only after they went public and had to soothe shareholders. Of course Charlie Munger was right about EBITDA.

  • @OnurcanYigit-tg1sk
    @OnurcanYigit-tg1sk 4 дня назад

    Ebitda is a great metric to make apples to apples comparison. That being said it is not bullet-proof. Asset heavy businesses (like Telecom) is not suitable for Ebitda valuations given high Depreciation charges. Ebitda alone does not factor in the full cashflow generation power of a company. A company can be highly profitable on Ebitda basis but working capital and capex requirements can wipe out all the operating cash (if not more), reverse is also applicable.
    Thats why there is no single multiple for all types of businesses. Financial analysts (bankers) factor in all these moving parts to make sense of the valuation multiple based on Ebitda.
    Nevertheless it is a great metric to compare similar businesses in the same industries and should shed a lot of light on operating performance of the company.

  • @jeffreypritchard6102
    @jeffreypritchard6102 5 дней назад

    Naturally, companies that have lots of debt LOVE EBITDA...lol. Who wouldn't? "If you take out all the bad stuff, our company looks pretty solid."

  • @cassbielski4325
    @cassbielski4325 3 месяца назад +1

    Aren’t owner earnings a lot like EBITDA?

    • @BrianFeroldiYT
      @BrianFeroldiYT  3 месяца назад +1

      No - owners earnings are effectively the amount of capital that be pulled out of a business without harming it. It’s a much harder number to achieve than EBITDA.

    • @cassbielski4325
      @cassbielski4325 3 месяца назад +1

      @@BrianFeroldiYT Thanks. I guess then, if you are asking for ideas, a similar explanation and example of owner earnings, perhaps contrasting with EBITDA, would be fun. Regardless, thanks for all your efforts.

  • @sutats
    @sutats 7 дней назад

    Speculate to accumulate!

  • @MuphoShana
    @MuphoShana 18 дней назад

    Loans are not intangible assets,,,,,

  • @ThisIsGoogle
    @ThisIsGoogle 18 дней назад

    It's for Special purposes. If you have to ask it's not for you, it's a very obvious Accounting tool when you know what it's used for

  • @Tuberis
    @Tuberis 3 месяца назад +3

    Very nice. I would skip the music and slow down the pace of speech if I were you.

  • @szymonc8739
    @szymonc8739 3 месяца назад +5

    Yeah well if you’re pure minority stock investor then yes, EBITDA does give you much insights as you’re probably more into net income (dividends) and free cash flow (whether company has enough resources to grow). But let’s be honest, if you’re buying companies out then you look at EBITDA because you don’t give a shit about capital structure or tax costs. You want to see how strong earnings the business can generate which tells you a lot about its performance

  • @sergesantos8897
    @sergesantos8897 26 дней назад

    EBITDA is used as a proxy for the annual operating cashflow. That's why EBITDA has been used since the dawn of time

    • @username7763
      @username7763 25 дней назад

      That might explain depreciation and amortization, but doesn't explain excluding interest expense and taxes.

    • @BrianFeroldiYT
      @BrianFeroldiYT  24 дня назад

      EBITDA was invented in the 1970s by John Malone.

  • @marcinekpomaranski
    @marcinekpomaranski 7 дней назад

    I thought I was the last one to see a scam in Ebitda :))))

  • @yashagar4443
    @yashagar4443 Месяц назад +2

    Depreciation and amortization are cash expenses

    • @BrianFeroldiYT
      @BrianFeroldiYT  Месяц назад +1

      Incorrect. They are cash expenses at the time of purchase, reflected on the cash flow statement. However, they are non-cash expenses on the income statement.

  • @George-ni5ic
    @George-ni5ic 13 дней назад

    Earnings Before All The Bad Stuff

  • @JD-im4wu
    @JD-im4wu 3 месяца назад +32

    ...yet u still see "CFA"s who base all their valuation on EBITDA on youtube for years posing as stock analysts "for" investors. tsk tsk Cameron

    • @BrianFeroldiYT
      @BrianFeroldiYT  3 месяца назад +3

      Yup….

    • @summerbreeze5115
      @summerbreeze5115 3 месяца назад

      😢

    • @jvh58
      @jvh58 21 день назад

      Nothing wrong with ebitda, you just need to account for average replacement investements. Which isnt necessarily equal to depreciation.
      But I agree that basing valuations solely on ebitda is dishonest, especially for capital heavy companies.

    • @icecream6256
      @icecream6256 13 дней назад +1

      Hello, a university student in investment club here. Yeah, EBITDA is used a lot, and seeing it as non GAAP, i asked my seniors who replied with differrent capital structure businesses, especially new companies that has bought a lot of equipments which incurs a lot of depreciation. I always use the P/E valuation to track a company, not EV/EBITDA as im unfamiliar with it

    • @JD-im4wu
      @JD-im4wu 13 дней назад

      @@icecream6256 yes p/e def better then ebitda nonsense. but p/e is also very manipulated its the free cashflows where the magic really seems to happen

  • @olivier9946
    @olivier9946 20 дней назад +1

    Let’s be honest here and Munger or this video could make you think that EBITDA is the sole metric we are using… Not at all, it is one of them and we can be pretty sure that BH did/do use EBITDA in their evaluation. If it was that simple we would be all rich… or poor
    Munger was also a real BS’ter too. Whenever I hear about Warren and Charlie, I think of the two old farts of the Muppet show sitting at their balcony laughing at their own jokes 😂
    RIP Charlie, EBITDA is still used!

  • @RobinKeck-i2b
    @RobinKeck-i2b 10 дней назад

    Please turn the music off and speak way more slowly. I’m not 5.

  • @sigungajoshua6149
    @sigungajoshua6149 2 месяца назад +1

    I HATE IT TOO !!!

  • @tompuijpeNL
    @tompuijpeNL 26 дней назад

    Let's just all pay 40x community adjusted EBITDA ;D

  • @davidsantos6048
    @davidsantos6048 3 месяца назад +1

    remove the song behind pls

  • @thenoodlebuddy
    @thenoodlebuddy 27 дней назад

    Didn't forget about the even dodgier adjusted ebitda!

    • @BrianFeroldiYT
      @BrianFeroldiYT  27 дней назад

      I was thinking about making a video about that…

  • @Chadhogan111
    @Chadhogan111 22 дня назад +1

    Hate these click bait thumbnails

    • @jkb462
      @jkb462 17 дней назад +1

      Fell for it too

  • @petermeszaros3849
    @petermeszaros3849 3 дня назад

    Ebitda??? Latka says what???

  • @brienchia
    @brienchia 16 дней назад

    Long story short...listen to the accountant, not the capitalist

  • @clarkkirkpatrick
    @clarkkirkpatrick 18 дней назад

    I hate this music
    Great video but very distracting, repetitive, sanitary music

  • @borism4629
    @borism4629 16 дней назад

    In short it's a sham

  • @matt.stevick
    @matt.stevick 16 дней назад

    rip to a goat 📈🇺🇸

  • @QqQ-h5h
    @QqQ-h5h 23 дня назад

    This is so good. Lol

  • @CP-oo8mj
    @CP-oo8mj 3 месяца назад +2

    So much wrong information in your video, don't know where to start...

    • @summerbreeze5115
      @summerbreeze5115 3 месяца назад +3

      Elaborate 🤔

    • @swphilosophy3040
      @swphilosophy3040 3 месяца назад +1

      ​@@summerbreeze5115 The definition of amortization is inaccurate. The statement that EBIT and operating income are the same is also false.

    • @CP-oo8mj
      @CP-oo8mj 3 месяца назад

      @@summerbreeze5115statement that EBITDA doesn't include SBC

    • @BrianFeroldiYT
      @BrianFeroldiYT  3 месяца назад +2

      Constructive feedback is always appreciated

    • @butwhytharum
      @butwhytharum 26 дней назад +1

      Never knew tax expenses weren't operating expenses. As if you don't pay and would continue to operate.