EBITDA: Warren Buffett Versus Everyone Else

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I wrote this article today on http://www.gurufocus.com.

It amazes me how widespread the use of EBITDA has become. People try to dress up financial statements with it.

We won’t buy into companies where someone’s talking about EBITDA. If you look at all companies, and split them into companies that use EBITDA as a metric and those that don’t, I suspect you’ll find a lot more fraud in the former group. Look at companies like Wal-Mart, GE and Microsoft — they’ll never use EBITDA in their annual report.

People who use EBITDA are either trying to con you or they’re conning themselves. Telecoms, for example, spend every dime that’s coming in. Interest and taxes are real costs.”

Source: Berkshire Hathaway Annual Meeting 2002 Tilson Notes

The above quote shows that Warren Buffett is not found of using EBITDA as a valuation metric. Buffett has made similar remarks about EBITDA on other occasions mocking the use of EBITDA.

Many big Buffett fans and value investors use EBITDA. Some of the greatest investors use EBITDA includingDavid Einhorn look at metrics like EBITDA. Companies, in their press releases many times like to highlight EBITDA. Sell-Side analysts almost always project EBITDA in their models, and discuss EBITDA in valuing a company.

Should you go with Warren Buffett or nearly everyone else in regards to EBITDA?

The rest of the article can be found here-http://www.gurufocus.com/news.php?id=121085

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