By Brad MacLiver
Authorship and profile at Google
EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization and is often used to measure the value of some businesses. It can also be used in the comparison of similar companies.
Generally, EBITDA makes it easier to evaluate various companies and to compare them against industry averages by removing the non-core and irregular operating costs, such as interest, which can vary depending on the management’s choice of financing, taxes which can fluctuate depending on acquisitions or losses from prior years, and arbitrary factors of depreciation and amortization.
The EBITDA formula can be used as a guideline when valuing larger companies, or when comparing the profitability of large similar companies in the same industry.
For the effective use of EBITDA, these larger companies should possess significant assets, have heavy amortization schedules, or bear substantial amounts of debt. Considering independentMaryland
EBITDA is calculated by:
I. Calculating net income by obtaining total income and subtract total expenses.
II. Determining the total amount of taxes paid to federal, state, and local governments.
III. Computing interest fees paid to companies or individuals for the use of credit, or capital.
IV. Establishing the cost of depreciation. Depreciation is the expense recorded to allocate a tangible asset's cost over its useful life).
V. Determining the cost of amortization. Amortization is the expense for consumption of the value of intangible assets like as goodwill, patents, and copyrights over either a specific period of time or the asset's expected life.
VI. Add #1 through #5.
EBITDA calculation example:
I. Net Income 1,900
II. + Taxes paid 560
III. + Interest Expenses 380
IV. + Depreciation 195
V. + Amortization 98
VI. = EBITDA 3,133
Hindering Aspects of EBITDA:
I. Can be misleading number when it is confused with cash flow.
II. Can make even completely unprofitable firms appear to be financially healthy.
III. Numbers are easy to manipulate.
IV. Can overlook cash requirements for growth in accounts receivable.
V. Can miss cash requirements for growth in inventories.
VI. Not factual when valuing small companies.
VII. Not effective for companies with few assets, small amounts of debt, or low depreciation or amortization schedules.
EBITDA has been used in leveraged buyouts to calculate whether companies could service their debt. Factoring out interest, taxes, depreciation, and amortization can allow an unprofitable business to appear financially healthy. This method of valuation was used extensively during the dotcom era to value unprofitable businesses, with few assets, little earnings, and the results from that method caused many to go bust. This was a blaring example of misapplying EBITDA.
Knowledgeable pharmacy specialists performingMaryland Maryland
The EBITDA number for a specific existing pharmacy in MD is important, for the most part, when the existing ownership is establishing their store value for the purpose of a line of credit, borrowing, creating a Trust, stock values, etc., but EBITDA does not have the same importance when selling a pharmacy. This is due to the fact the buyer will not have the same expenses as the seller.
Buyers may not have the same tax base, interest expense, or the same depreciation schedule, thus it is important that the buyer calculate an estimated EBITDA that is specific to their operating model, business systems, buying power, cost of operations, etc., not the sellers. It should also be noted that EBITDA assumes that the buyer will acquire all of the assets, working capital, accounts receivable, and liabilities. Those assumptions do not hold true regarding an acquisition of aMaryland
************************
Authorship and profile at Google
EBITDA is an acronym for earnings before interest, taxes, depreciation and amortization and is often used to measure the value of some businesses. It can also be used in the comparison of similar companies.
Generally, EBITDA makes it easier to evaluate various companies and to compare them against industry averages by removing the non-core and irregular operating costs, such as interest, which can vary depending on the management’s choice of financing, taxes which can fluctuate depending on acquisitions or losses from prior years, and arbitrary factors of depreciation and amortization.
The EBITDA formula can be used as a guideline when valuing larger companies, or when comparing the profitability of large similar companies in the same industry.
For the effective use of EBITDA, these larger companies should possess significant assets, have heavy amortization schedules, or bear substantial amounts of debt. Considering independent
EBITDA is calculated by:
I. Calculating net income by obtaining total income and subtract total expenses.
II. Determining the total amount of taxes paid to federal, state, and local governments.
III. Computing interest fees paid to companies or individuals for the use of credit, or capital.
IV. Establishing the cost of depreciation. Depreciation is the expense recorded to allocate a tangible asset's cost over its useful life).
V. Determining the cost of amortization. Amortization is the expense for consumption of the value of intangible assets like as goodwill, patents, and copyrights over either a specific period of time or the asset's expected life.
VI. Add #1 through #5.
EBITDA calculation example:
I. Net Income 1,900
II. + Taxes paid 560
III. + Interest Expenses 380
IV. + Depreciation 195
V. + Amortization 98
VI. = EBITDA 3,133
Hindering Aspects of EBITDA:
I. Can be misleading number when it is confused with cash flow.
II. Can make even completely unprofitable firms appear to be financially healthy.
III. Numbers are easy to manipulate.
IV. Can overlook cash requirements for growth in accounts receivable.
V. Can miss cash requirements for growth in inventories.
VI. Not factual when valuing small companies.
VII. Not effective for companies with few assets, small amounts of debt, or low depreciation or amortization schedules.
EBITDA has been used in leveraged buyouts to calculate whether companies could service their debt. Factoring out interest, taxes, depreciation, and amortization can allow an unprofitable business to appear financially healthy. This method of valuation was used extensively during the dotcom era to value unprofitable businesses, with few assets, little earnings, and the results from that method caused many to go bust. This was a blaring example of misapplying EBITDA.
Knowledgeable pharmacy specialists performing
The EBITDA number for a specific existing pharmacy in MD is important, for the most part, when the existing ownership is establishing their store value for the purpose of a line of credit, borrowing, creating a Trust, stock values, etc., but EBITDA does not have the same importance when selling a pharmacy. This is due to the fact the buyer will not have the same expenses as the seller.
Buyers may not have the same tax base, interest expense, or the same depreciation schedule, thus it is important that the buyer calculate an estimated EBITDA that is specific to their operating model, business systems, buying power, cost of operations, etc., not the sellers. It should also be noted that EBITDA assumes that the buyer will acquire all of the assets, working capital, accounts receivable, and liabilities. Those assumptions do not hold true regarding an acquisition of a
************************
