Sweeping Flashcards
Why is EBITDA important?
- proxy for cash flow
- compare profitability btw cos and inds b/c eliminate financing & accounting decisions
What is EBITDA
Earnings before interest taxes depreciation amortization
What are the cons of EBITDA?
- non GAAP- allows for discretion as to what’s included
Why do we prefer EBITDA over NI to gauge strength/ weakness of co?
much stronger indicator of operational strength
- removes items with less bearing on operations
Why must taxes be removed to let EBITDA measure operational strength?
affected by accounting and tax conventions
Why must interest be removed to let EBITDA measure operational strength?
function of leverage not operations
varies according to debt load which is independent of operational strength
Why must depreciation be removed to let EBITDA measure operational strength?
based on PP&E, no bearing on operational strength
Why do we need CFO when we have EBITDA?
- CFO has change in NWC but EBITDA doesn’t
- CFO burdened w taxes and interest b/c starts w NI
- CFO includes deferred rev- EBITDA could be severely understated
Why could CSE be -ve?
- NI could be -ve
- issued to many dividends
- repurchased too many shares
How do amortization of OIA and impairment of goodwill show up on accounting?
show up on IS as an expense
non-cash adjustment on CFS (add back)
Why do we bother with LIFO/ FIFO?
maximize COGS to lower pretax income and taxes paid
Which of LIFO/ FIFO is best for inflationary environment?
LIFO b/c higher COGS -> lower taxes
What happens to dividends on the BS when they are declared but not yet given out?
Appear as a liab- dividends payable
Positive and growing EBITDA but then ran low on cash and bankrupt. What could’ve happened?
- capex too high
spent too much on unsuccessful acquisitions - interest expense too high (high debt)
- large onetime expense eg. legal cost
