Warren Buffett and Charlie Munger expose public companies that mislead their investors by using profit metrics such as EBITDA to their advantage. Be careful and don’t fall for those “BS earnings”.
The question goes: “You have argued against the use of alternate measures of profitability, such as earnings before interest, tax, depreciation, and amortization, as measures of business performance. At the same time, you have frequently cited the incompleteness of GAAP in reflecting economic reality for some businesses, implying that there are some necessary and proper adjustments. Beyond what you recently described in the annual report as the folly of omitting depreciation, could you elaborate on your thoughts on other pitfalls of alternative financial presentations? Is EBITDA, in your view, just too often used as a shorthand for cash flow, or is the entire concept of recasting accounting data a suspect exercise? And which revisions might be appropriate, if any? And what might be viewed as red flags? And does it matter to you who is making those adjustments? Analysts, investors for their own purposes, or company managements, in terms of how that information should be viewed?”
From Berkshire Hathaway Annual Shareholders Meeting. (2003)
Warren E. Buffett is an American long-term investor, philanthropist, business tycoon, and the chairman & CEO of Berkshire Hathaway. He is considered one of the most successful investors in the world and has a net worth over 100 billion dollars. Buffett was born in Omaha, Nebraska. He developed an interest in business and investing in his youth and made truly incredible stock market returns over his career.
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Warren Buffett Getting Mad About Bullsh*t Earnings (EBITDA Warning)
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