Adjusted EBITDA is a very common metric that can be found in many investor presentations, which makes understanding EBITDA and acceptable adjustments to this figure important. Unfortunately EBITDA is frequently used as a proxy for cash flow. As this video will demonstrate, it is anything but. In businesses that require heavy capital expenditures or those with heavy debt burdens, the discrepancy between EBITDA and cash is vast. Add to this the adjustments investment bankers and management teams will use to embellish or even exaggerate earnings and the metric can become meaningless. As the saying goes, “You Can’t Eat EBITDA.”

In the context of debt service, EBITDA can be helpful because adding back interest expense, taxes and noncash charges including depreciation and amortization, provides a quick back of the envelop approach to evaluating how much interest expense a company can tolerate. But, it has become pretty common for this metric to include additional adjustments when there’s an attempt to raise capital or sell shares to make the company look even more profitable than it is. WeWork arguably pushed the envelope on an otherwise common attempt to inflate earnings with words vs. dollars.

Part 1:    • Why the Cash Flow Statement Is So Imp...  
Part 2:    • How the Cash Flow Statement Balances ...  
Part 3:    • Earnings vs Cash Flow  
Part 4:    • Adjusted EBITDA Example: WeWork Commu...   (this video)