EBITDAGSAC: A Guide to Cash Generation for Bankers

by User Submitted

Submitted by reader cjm in response to Earnings Before Everything

Many have noted that EBIT is a bad measure of a company’s ability to pay down debt because it includes abstractions like Depreciation and Amortization that aren’t really cash expenses. Hence, EBITDA.

But why stop there?

Your Sales and Marketing team are bounty hunters by blood; let them sharpen their hunger a little.

Thus, I propose EBITDAMS.

Of course, I am about to outdo myself. Aren’t General and Administrative expenses highly theoretical at the end of the day? Is Cindy in accounting, with her two plump mortgages, really going to stop coming to work if you don’t pay her for a quarter?

Thus, (say it with me) EBITDAGSA.

What about COGS, you ask? The power of my theory is rivaled only by its subtlety: pay your vendors in stock options. (for the novitiate: options are a kind of theoretical scrip, not dissimilar from Camel Bucks, Mexican pesos, or Monopoly money.)

Thus, EBITDAGSAC.

By this transformative metric, no business can reasonably be said to be too expensive. It’s like beer-goggles for acquisitions; that 40 P/E heifer with acne scars is a waifish 1/1 cindarella after a few pitchers of EBITDAGSAC.

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