The word ebitda, like the words justice, freedom and equality, means different things to different people.
Some like the plain vanilla version of the financial metric, which simply adds the non-cash costs of amortisation and depreciation back to earnings before interest and tax.
Others, however, like to add a bit more spice. Why not chuck in some other pre-tax expenses? Stock options aren’t a cash cost, so yeah why not? How about restructuring costs (who cares if it represents cash flowing out the business if it’s just a one-off)? Etc. etc.
Much of the focus on adjusted ebitda metrics has been on the equity and private credit side. Think of Uber and Lyft’s liberal use of the term since their respective public offerings, WeWork’s infamous “community-adjusted ebitda”, or as Bloomberg’s Davide Scigluzzo covered in December, the 2,723-word ebitda definition which featured in the loan docs for steakhouse chain Del Frisco’s Restaurant Group.
In a research note, the good folks at Zion Research Group -- a scuttlebutt accounting firm based in New York City -- have taken a look at the adjusted ebitda metrics in listed companies credit agreements, specifically the tech sector, and it’s just about as absurd as you might imagine.
Here’s how long the definitions for adjusted ebitda were for the 90 tech companies that have some form of credit agreement documentation filed with the Securities and Exchange Commission.
Gulp:
Yep, there are three definitions of adjusted ebitda longer than 2,000 words out there just in tech. For reference, that’s not just longer than the Declaration of Independence, but famous short stories such as Kafka’s Before the Law, which feels kind of fitting.
Wonder what it looks like on the page? Here’s $1.6bn education technology company 2U’s definition, from the respective 8-K (well, as much we could fit in a screenshot, with the monitor horizontal, and zoomed out):
By our reckoning, that’s EBITDAORCNCCSBCLNRERCCCFHA. Or something like that, we got a bit lost towards the end.
Related Links:
The magic of adjustments: ebitla-dee-da -- FT Alphaville
Fuzzy Math That Fueled Junk Debt Boom Is Sparking Jitters -- Bloomberg
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February 21, 2020 at 06:16PM
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