Long or Short Capital

Many companies provide an EBITDA figure along with their earnings, and they let you know it’s a non-GAAP measure, because, well, it’s a non-GAAP measure. Like Skittles, EBITDA comes in a rainbow of fruity flavors: adjusted EBITDA, EBITDAR, EBITDAM, EBITA, EBITDARP, EBITDARM, EBITDARPO, EBITDO and when times get really bad REBITDA.

We think there is an ample opportunity for the introduction of a new non-SAAP measure, one we call EBE or Earnings Before Everything. Let’s cut to the chase, let’s not dicker around, people use EBITDA as a proxy for free cash flow but management wants to use it as a way to inflate the appearance of a company’s health and what better way to do that than EBE? Add-back whatever you want, add it all back, even stuff the firm has nothing to do with. How much did the Chunnel cost? $100 billion? Add that back. Katrina cost a lot too. Add that back. That earthquake in Pakistan or Mexico or wherever? Add that back. Did you donate to charity? Add it back. Did you write something down? Add it back. Did you write something up? Use your discretion to not back that out.

Recommendation: Whenever I see EBITDAM, I say it in my mind like someone who is really surprised at EBIT. Like “EBIT, DAMN, those results are amazing!” or “EBIT-DAM! Cash flow is king!”

• SAAP Notice on Fiscal Year End
• Adjusted GPA on a Pro Forma Basis
• Long Mnemonic Devices
• Notice to Subscriberholders: Change in Accounting Principle from GAAP to SAAP
• The Sell Side (A Continuing Series)