Adjusted EBITDA: Financial doping for loss makers

Veterans pinch their noses whenever a company mentions EBITDA. The legendary Charlie Munger of Berkshire Hathaway once said, "I think that every time you see the word EBITDA, you should substitute the words bullshit earnings." And for a good reason. EBITDA stands for earnings before interest, tax, depreciation and amortisation. Now say a company earned Rs 200 crore in revenue and had to spend Rs 80 crore in operating expenses in a quarter. So that means Rs 120 crore of earnings and a margin of 60 per cent! Stellar numbers, indeed. But are they? What if the company had taken enormous debt and had to pay Rs 100 crore as interest payments? And what about its assets? Surely, they are not blessed with immortality and will depr

This article was originally published on February 22, 2023.