Earnings before interest, taxes, depreciation and amortisation — ebitda — has become a popular standard for measuring business performance. Listed companies use it on earnings calls and some use it interchangeably with cash flow. It’s considered a stronger indicator of ongoing, operational strength than net income by those who view interest expense as a function of leverage rather than operations; taxes as "non-operational", affected by a variety of accounting and tax conventions; depreciation as an accounting convention (based on property, plant and equipment) with little bearing on the ongoing operational strength of the firm, and; amortisation as yet another accounting convention, this time dealing with intangibles. But it has its detractors. Moody’s Investors Service analyst Pamela Stumpp outlined what she called the "critical failings" of ebitda. "Companies will come into rating agencies," said Stumpp "and they’ll use ebitda as an approximate measure of cash flow. More often th...
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