Profits as fiction

Tomorrow's Business

A new battleground in the fight between hacks and flaks emerges: The FT reports that companies are introducing a new profit metric – ebitdac. That’s earnings before interest, tax, depreciation, amortisation and coronavirus.

Hacks have been rowing with flaks about Ebitda for yonks. Corporate flatterers prefer the use of Ebitda since it looks so much better than the more traditional pre-tax profit.

There’s a certain breed of flak (and chief executive) who will ring up hacks and berate them for not quoting Ebitda. “You’re looking at the wrong number! You don’t understand!” they shout.

On this issue, the hacks are right and the flaks can do one.

There is nothing wrong with companies offering different measures of how they are performing. And ebitdac might be an interesting exercise, but it is plainly a complete guess. The company can’t possibly know how it would have done without the virus.

The FT story quotes an expert describing ebitdac as “literally a fiction”.

That’s right. It’s like me saying that if you leave out the mortgage I’m awash with cash and have very little debt.

This is both true and totally meaningless.

Sales are sales. Profits are profits. And everything else is horse manure.

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