EBITDA Caveats

The utility of EBITDA for providing a standardized unit of comparison among multiple enterprises must be considered within the context. 

• Working Capital

  • • For example, a change in working capital from period to period would not be evidenced in the EBITDA metric and must be identified separately. In the case of a period wherein the company decreased accounts payable or built inventory or receivables, this might cause EBITDA to be understated.

• Capex

  • • When considering more than any single period, capital expenditures likely would still be relevant. Capital intensive enterprises might then require a better evaluation with EBIT or EBITDA-CAPX.

• Anomalies

  • • Unusual, non-recurring expenditures might be excluded with a normalized result being more representative.

• Distress

  • • As with anomalies, a normalized metric might be produced.

STEPHEN G. MOYER, DISTRESSED DEBT ANALYSIS: STRATEGIES FOR SPECULATIVE INVESTORS, 102-103 (J. Ross Publ'g. 2005) (providing a pragmatic description of pre-petition and post-petition investment opportunities and challenges).

See also Example EBITDA Comparison and Credit Tolerance.