Re: EBITDA [was Re: Interconnects]
On Mon, 20 May 2002 12:08:32 EDT, Chris Woodfield said: Intermedia, for example, was EBITDA positive for all of the time I was working for them, yet was bleeding approx. $100 million plus in interest payments per year. This created a very real cash crunch that prompted the sale to Worldcom. I believe the *original* comment was If they're EBITDA-negative, they're *really* screwed without more cash(*). -- Valdis Kletnieks Computer Systems Senior Engineer Virginia Tech (*) As many dot-bombed discovered when the bubble burst... msg01974/pgp0.pgp Description: PGP signature
Re: EBITDA [was Re: Interconnects]
My take on ebitda, it is what non profitable companies use to put a positive spin on their situation. Bri On Mon, 20 May 2002, Chris Woodfield wrote: The main fallacy of EBITDA is that a lot of people confuse EBIDTA figures with cash flow figures. While the utility of a quarterly figure showing cash flow PL, stripping off all noncash transactions, would be substantial, most companies prefer to quote EBIDTA instead, which, while disregarding all noncash figures, also removes interest and taxes as well, both of which are very much recurring cash expenditures and should be included in cash-flow PL figures. In the absence of a cash-flow P/L figure, a lot of people look at EBITDA instead and forget about the very real cash expenditures involved with interest and taxes (and often other case expenditures that the company chooses to throw out in order to make the number look better). Intermedia, for example, was EBITDA positive for all of the time I was working for them, yet was bleeding approx. $100 million plus in interest payments per year. This created a very real cash crunch that prompted the sale to Worldcom. -C On Sat, May 18, 2002 at 06:09:56PM -0700, Steve Gibbard wrote: On Sat, 18 May 2002, Mike Leber wrote: press releases regarding their other choices, or perhaps considering whether the companies they consider alternatives are EBITDA postive (making a profit, or in otherwords will exist in 12 months) today (not in an imaginary planned future) or for the few that are EBITDA positive, whether they actually seem to want your business. EBITDA positive does not mean profitable, or even necessarily financially stable. EBITDA is earnings before interest, taxes, depreciation, and amoritization -- all things that tend to have an impact on your finances. If you were using EBITDA as the measure of your personal financial situation, you could spend far more than your after tax income, but less than your before tax income, and declare yourself to have come out ahead. Your bank, however, probably wouldn't see it that way. The same goes for corporate finance, except that the corporations that were announcing their EBITDA numbers as the important financial data often had enough in the bank, and enough market cap, that it didn't become a critical problem for a few years. My understanding is that EBITDA does have legitimate accounting uses, but I'm not clear on what they are. I'm tempted to label this message as off-topic nitpicking, but given that the biggest problem with Internet stability at the moment seems to be financial, I'm not sure it is. -Steve Steve Gibbard [EMAIL PROTECTED]
EBITDA [was Re: Interconnects]
On Sat, 18 May 2002, Mike Leber wrote: press releases regarding their other choices, or perhaps considering whether the companies they consider alternatives are EBITDA postive (making a profit, or in otherwords will exist in 12 months) today (not in an imaginary planned future) or for the few that are EBITDA positive, whether they actually seem to want your business. EBITDA positive does not mean profitable, or even necessarily financially stable. EBITDA is earnings before interest, taxes, depreciation, and amoritization -- all things that tend to have an impact on your finances. If you were using EBITDA as the measure of your personal financial situation, you could spend far more than your after tax income, but less than your before tax income, and declare yourself to have come out ahead. Your bank, however, probably wouldn't see it that way. The same goes for corporate finance, except that the corporations that were announcing their EBITDA numbers as the important financial data often had enough in the bank, and enough market cap, that it didn't become a critical problem for a few years. My understanding is that EBITDA does have legitimate accounting uses, but I'm not clear on what they are. I'm tempted to label this message as off-topic nitpicking, but given that the biggest problem with Internet stability at the moment seems to be financial, I'm not sure it is. -Steve Steve Gibbard [EMAIL PROTECTED]
Re: EBITDA [was Re: Interconnects]
On Sat, 18 May 2002, Steve Gibbard wrote: EBITDA positive does not mean profitable, or even necessarily financially stable. EBITDA is earnings before interest, taxes, depreciation, and amoritization Correct, however I was trying to provide a simplified translation. A company that isn't EBITDA positive can't survive by declaring bankruptcy becausee even after they get rid of the interest payments they will still have a negative run rate. The reason for using EBITDA as an early indicator for financial health when analyzing companies is that it allows you to look at the health of the operation independent of their debt structure and prior capital expenditures (depreciation and amortization) so that you can get a better idea of their cash flow. The reason why cash flow matters is because when a company runs out of cash bankruptcy is imminent. Profitiability from a PL statement (expecially for public companies) involves so many components that it frequently doesn't allow you to evaluate a company until it has matured. The same goes for corporate finance, except that the corporations that were announcing their EBITDA numbers as the important financial data often had enough in the bank, and enough market cap, that it didn't become a critical problem for a few years. True, however by looking at EBITDA and current assets (cash in the bank) you can get a quick picture of the likely hood a company solving anything by declaring bankruptcy and a rough time frame to their imminent demise. My understanding is that EBITDA does have legitimate accounting uses, but I'm not clear on what they are. I hope you find my explanation above a useful rule of thumb. I'm tempted to label this message as off-topic nitpicking, but given that the biggest problem with Internet stability at the moment seems to be financial, I'm not sure it is. Due to the fact that I've had to order redundant capacity from multiple vendors in situations where there was enough traditional physical network redundancy, this seems to have become an important network provisioning issue. Mike. +--- H U R R I C A N E - E L E C T R I C ---+ | Mike Leber Direct Internet Connections Voice 510 580 4100 | | Hurricane Electric Web Hosting Colocation Fax 510 580 4151 | | [EMAIL PROTECTED] http://www.he.net | +---+
Re: EBITDA [was Re: Interconnects]
EBITDA positive does not mean profitable, or even necessarily financially stable. Right you are. So please let me clarify my earlier statement (that PAIX has been modestly profitable for years). If we were not a wholly owned subsidiary we would owe income taxes. When we have been wholly owned by companies who were paying income taxes, some of the taxes they had to pay were because of PAIX. (Presumably this positive our income situation will make it easy for MFN to sell us.) Let's have a look at Extreme Networks' recently published financials. (Bring up http://biz.yahoo.com/fin/l/e/extr.html to follow along.) These folks showed a net loss this quarter yet the analysts applauded them and their stock shot up a bit because they had a nonrecurring charge larger than their net loss. This tells analysts that the company would have taxable income if not for the nonrecurring event, which gives them hope for the next quarter. On http://biz.yahoo.com/fin/l/e/extr_ai.html we even see that in the year ending July 2000 they paid $10M in income taxes, which tells us that maybe they know how that feels and want to do it again some day. I like EBITDA as a yardstick for measuring one company against another if they are otherwise similar and I'm looking for a differentiator. But I don't personally buy stock based on EBITDA numbers -- I want to see actual net income and, paradoxically, I love a company who has to pay income tax because it means they had INCOME to pay taxes on. -- Paul Vixie [EMAIL PROTECTED] President, PAIX.Net Inc. (NASD:MFNX)
