Uber, Lyft, Pinterest and other high-profile internet companies rely on adjusted EBITDA in their earnings reports. Some investors are skeptical.
"Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA," Munger said on Wednesday, at the Los Angeles-based Daily Journal annual shareholders meeting. "You're almost announcing you're a flake."
To get to EBITDA, companies take bottom-line net income , based on generally accepted accounting principles , and then add back in items they had counted as costs but that don't affect their cash position. For example, as equipment and software ages, the depreciating value counts as an expense even though it doesn't involve the outlay of capital, so EBITDA lets you show how earnings would look without depreciation.
Munger's comments centered around the excessive use of EBITDA by companies at a time when there are an increasing number of red flags in a stock market that's been on the rise for over a decade. Critics of EBITDA and other non-GAAP accounting metrics have long argued that you can make any business look good when you start stripping out costs, especially when there's no standardization.
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