[gruez]

>EBITDA is nonsensical and it makes my brain implode when I realize how many investors utilize the metric

From wikipedia:

"EBITDA is widely used when assessing the performance of a company. EBITDA is useful to assess the underlying profitability of the operating businesses alone, i.e. how much profit the business generates by providing the services, selling the goods etc. in the given time period. "

There's plenty of ways that EBITDA can be misleading, but so can net income. Same goes with other statistics like the unemployment rate or GDP. They have flaws, but that doesn't mean they're "nonsensical and it makes [your] brain implode"

[williamcotton]

EBITDA ignores so much that it seems basically useless. I'm not the only one who is critical of this metric. See: Warren Buffet.

It is also batshit insane to manage a company based on this metric.

[MilStdJunkie]

Yeah. It's a useful statistic in certain limited applications, but that is NOT how it's employed. It's grossly overused. Ignoring amortization and depreciation is like ignoring salaries, and the overuse of EBITDA can be directly traced to chronic and pathological underfunding of maintenance and supportability.

A good red flag for a statistic is when you see a couple dozen variants of the statistic being used interchangeably. Often at each All Hands Meeting. Oh, this month they're using EBITDA. Next month we're talking up EBITDAR. Who knows what the Overlords will be talking up four months from now? Something that makes the line go up, doubtless. Hopefully no one notices that barring buybacks, EPS has dropped under the table like a soused homecoming queen.

[williamcotton]

Amortization is incredibly important in a software company. Most software is going to be basically useless in 10 years time. Your company's Android app? There might not even be smartphones in 10 years.

And for something as complex as making software it papers over almost any meaningful understanding of how well a firm is operated.

That's what I mean about my head turning into a black hole. Management using such metrics internally is basically saying that they don't give a rat's ass about how much anything really costs.

As we've seen over the last year and a half, the chicken's come home to roost at some point. Rosy pictures are ripped to shreds by the actual cash flows.

Financial accounting is about where you've been for the last three months. Managerial accounting is about where you're going in the next three years. Our industry is firmly set on driving while only looking out the rearview mirror. I expect this to be changing rapidly at most software firms.