Why does Buffett dislike EBITDA?
Karolina Weigel
2025-09-15 10:59:37
Anzahl der Antworten
: 7
Warren Buffett is well known for disliking EBITDA multiples to value a business’s financial performance.
It amazes me how widespread the use of EBITDA has become.
We won’t buy into companies where someone’s talking about EBITDA.
If you look at all companies, and split them into companies that use EBITDA as a metric and those that don’t, I suspect you’ll find a lot more fraud in the former group.
Does management think the tooth fairy pays for capital expenditures?
Warren Buffett does not think that it is a true representation of the company’s performance financially.
Mr. Buffett is pointing at the fault of using EBITDA metrics in that they exclude depreciation and amortization as a means of valuing the company.
Although the depreciation and amortization expense is not an actual cash outflow, it does, in effect, reduce the value of a company’s total assets through reducing the value of specific capital and/or financial assets.
Using EBITDA as a means of valuing this company would be entirely fallacious, as it would not account for the loss in value that the factories are experiencing.
Marek Wunderlich
2025-09-15 10:44:18
Anzahl der Antworten
: 13
Why does Warren Buffett despise EBITDA as a financial formula and refuse to buy companies who use it to measure their financial health?
Because leaders like Buffett and Abraham Lincoln have a depth of moral clarity that extends far beyond the moral insight that even very good people have.
Depreciation is a long-term cost.
And ignoring that cost in this year’s financial report results in decisions that eventually reduce investments in people and thus reduce the ability to retain and attract talent.
Most leaders have never considered the long-term unintended consequences of using EBITDA for a moment, nor considered the moral and human implications of decisions that Buffett and Lincoln would have immediately recognized.
Guiseppe Fröhlich
2025-09-15 09:55:04
Anzahl der Antworten
: 8
According to Buffett, EBITDA is not reflective of a company’s true financial performance due to neglecting capital expenditures (Capex) and changes in working capital, among various other issues.
EBITDA does indeed add back depreciation and amortization (D&A), usually the largest non-cash expense, the metric fails to capture the full cash impact of Capex or changes in working capital.
The flaw of neglecting the cash impact of Capex particularly applies to capital-intensive industries (e.g. manufacturing, telecom).
Given how EBITDA neglects Capex, Buffett does NOT believe EBITDA is a true representation of a company’s financial performance, especially if management is deemed trustworthy.
EBITDA can make unprofitable companies appear profitable since EBITDA ignores depreciation and amortization as well as interest and taxes.
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