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EBITDA / EBIDA or Giggedy / Giggety (which one to use?)


DooDiligence
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When is it good to at least glance at EBITDA or one of its variants?

 

Is it just a good way to level the varying CAPEX / debt & tax situations / depreciation choices, of various companies for comparison?

 

I would think that as long as management uses realistic depreciation schedules, the income statement should look right without any funny business.

 

and another thing, I like companies with higher CAPEX than depreciation because I believe it provides for a better future in the hands of a good capital allocator (would this be indicative of funny business to come?)

 

What effect does capex exceeding depreciation have, if it's done consistently over an extended period?

Is_EBITDA_as_Bad_as_Buffett_Says?.pdf

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I don't understand why anyone would want to ignore a company's capital structure or how it compares to competitors'.  Unless you are able to buy equity in the business absent the capital structure.  And I don't think EBITDA "levels the playing field" at all, it simply blinds you to the differences you should be paying attention to.

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It's useful for companies/industries that don't have much of any "A" cost and very little "D".

So basically you should be using EBIT instead.  ;)

 

that would sound much better in an earnings call than EBIDA (just sounds goofy...)

 

oh god, listening to QSR call & the guy just said EBIDA.

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It's useful for companies/industries that don't have much of any "A" cost and very little "D".

So basically you should be using EBIT instead.  ;)

 

It's possible I misspoke, however, I meant to say that there is an "A" accounting cost but it isn't a true cost or a good portion of it isn't a true cost as in the amortization of customer relationships. If the relationships are gained as fast or faster than they are lost by a constant sales/marketing expense than the A is this case isn't a real cost imo. Buffett mentions this in recent letters etc with Precision Castparts and it's true for freight brokers/forwarders that are generally acquisitive.

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I don't understand why anyone would want to ignore a company's capital structure or how it compares to competitors'.  Unless you are able to buy equity in the business absent the capital structure.  And I don't think EBITDA "levels the playing field" at all, it simply blinds you to the differences you should be paying attention to.

 

Joel Greenblatt's reasoning is that capital structure often takes care of itself. If a company is under-levered, it will likely be taken over and geared up. etc.

From a quantitative perspective, where you are buying large baskets of 30+ stocks, it is fine to use crude valuation tools by themselves.

 

This methodology is not meant to be used on individual stocks though. You should consider control, liklihood of acquisition or activist stake,capital structure ratios, p/fcf, pe, ev/ebitda (less maintenance capex), coverage ratios etc... not individiual metrics in isolation.

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