first of I want to thank you for a well written and interesting blog!
I have a question that I would be thankful if you could answer. I noticed that you use EBITDA, why do you choose this one before EBIT or EBT? Isn't there a risk not taking depreciation and amortization into account when evaluating a stock? Or do you somehow look at those later on in the analysis?
Sorry for the delay on my response. I use EBITDA because depreciation is often and easily manipulated. Even still the useful life and terminal value that is used for deprecation is not realistic. You can take the actual capital expenditures and adjust your EBITDA to account for capital requirements needed to run and improve the operations. And yes you can drill deeper on capital needs once you narrow your investment choices.
3 comments:
Hi,
first of I want to thank you for a well written and interesting blog!
I have a question that I would be thankful if you could answer. I noticed that you use EBITDA, why do you choose this one before EBIT or EBT? Isn't there a risk not taking depreciation and amortization into account when evaluating a stock? Or do you somehow look at those later on in the analysis?
Thanks,
Jonas.
Hi Jonas
Sorry for the delay on my response. I use EBITDA because depreciation is often and easily manipulated. Even still the useful life and terminal value that is used for deprecation is not realistic. You can take the actual capital expenditures and adjust your EBITDA to account for capital requirements needed to run and improve the operations. And yes you can drill deeper on capital needs once you narrow your investment choices.
Regards
John
Thank you for the answer John, that makes sense.
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