EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) is considered an important metric to look at when one is considering buying a franchise or small business. But hold on, advises this CTP (Certified Turnaround Professional). EBITDA deceives, he says, making the company look better than it really is. He goes so far as to call the metric “a fairy tale.”
EBITDA, that widely-touted measure of company performance and indicator of value otherwise known as earnings before interest, taxes, depreciation, and amortization, is a fairy tale told to investors and credit managers so that they go to sleep happy instead of running for the hills. … In reality, EBITDA is akin to a blender, into which go normal financial statements and out of which comes a number that always seems to make the subject company look better than it did when the numbers went into said blender.
Let’s take a look at five reasons why relying on EBITDA means buying into a great big lie. — Ted Gavin, Forbes
Source: Buying a Franchise