I love Charlie Munger


He sits next to Warren B, swaying his head as WB waffles away, and then delivers the knockout punch

waffle waffle waffle Charlie, anything you’d like to say about EBITDA?

“every time you see EBITDA just replace it with the phrase Bullsh*t earnings”

Go, Charlie!

But now there’s a new villain on the accounting slippery slope – Adjusted EBITDA

So let’s go with “complete Bullsh*t” – I’m sure Charlie would agree

But don’t all investment bankers use EBITDA?

Perhaps, but since most deals destroy value, maybe that’s the problem

Maybe if more acquirers used multiples of GAAP net income, they’d pony up less money & destroy less value

But isn’t management simply trying to illustrate normal earnings?

No, they’re trying to juice the share price to cash in their options – wake up people!

That accounting is like airbrushed Tinder photos (so I’m told) – no resemblance to reality

Adjustments are supposed to be “exceptional”, out of the ordinary

Except the companies that use these tricks are rarely “exceptional” and more often “ordinary”

On 4th May 2022 Revlon reported Q1 results – a net loss of minus $67m

But they reflected Adjusted EBITDA of $58m

Want to know the truth?

43 days later Revlon filed for bankruptcy

Conclusion – Adjusted EBITDA was complete Bullsh*t

Now capital intensive businesses like these adjustments because reversing depreciation makes their businesses look better

and serial acquirers like them because they want you to ignore the amortisation of the goodwill they paid

Now imagine a serial acquirer… in a capital-intensive industry

And you get a company that LOVES these adjustments!

In the latest results, XPO disclosed a net loss of -$94m in Q4 but adjusted EBITDA of $252m

and they used the phrase, “Adjusted EBITDA” 39 times on their conference call!

I know it’s Feb and love is in the air, but 39 times?!

Maybe they’re hoping we ignore all restructuring, transaction, integration, and goodwill expenses

Except they charged those on the roll-up (when acquiring companies)

and are still charging them after spinning off entities

Bloomberg tells me that they’ve charged $515m in total Merger / Acquisition expenses since Q3 2015

compared to cumulative Comprehensive income since then of $2bn!

My conclusion: Complete Bullsh*t x 39

What’s even worse is that remuneration committees are now using Adjusted EBITDA

Bed Bath & Beyond (help)’s GAAP Net Loss in 2021 was -$560m

But Adjusted EBITDA was +$182m

Which number was the best guide?

Well BBBYh is on the brink of bankruptcy so yet again GAAP told the truth

But since management was getting remunerated on a number BEFORE interest, do you think they cared about debt?

Don’t be silly, that’s why they’ve blown up

So there you have it – focus on GAAP

Ignore EBITDA & adjusted EBITDA

Just think ” complete Bullsh*t” to be safe,

You won’t be sorry