Daily Archives: March 21, 2014

S&P – EBITDA: It’s All In The Definition

Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a common measure used in financial analysis and many companies report it when presenting financial information. However, neither U.S. generally accepted accounting principles (GAAP) nor International Financial Reporting Standards (IFRS) define how companies should calculate EBITDA, which makes it a non-GAAP measure. This lack of standards leads to incomparability among peer companies, which presents challenges to users of financial information. Additionally, EBITDA may exclude a number of costs and cash flows and, therefore, can sometimes paint an overly rosy picture of a company’s performance. Despite the potential variability, the SEC allows companies to report non-GAAP measures but places restrictions on their use and presentation. To protect investors, the SEC requires companies to provide reconciliations of their non-GAAP measures to the nearest GAAP measure. The risks and limitations contribute to how we calculate and use this popular, yet enigmatic, measure.

Read full article at https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1260262&SctArtId=215666&from=CM&nsl_code=LIME