Is EBITDA necessary for valuing a company?

[DarkRange55]

EBITDA is like this weird adjusted cashflow method it looks like where you add back interest, taxes, depreciation, amortization. Whereas on the statement of cashflows you also add back depreciation & amortization but you have other stuff that they add back. Its all the non-cash expenses and accounts where it changes working capital on the balance sheet. So you're actually seeing where the cash went.

So why not just use the statement of cashflows?
Good question.

Yes, simple cashflows are decent approximations, but when you take value based finance, people try adjust for all tax based (interest and debt) and other frictions... that way you have some sort base and comparable cashflows to value investment decisions and company value. EBITDA is a more comparable view of the profitability of the business ex all the out her expenditures. Like if they cut back, what is the profitability.

There are two types of cashflow statements, Direct and Indirect cashflow statements. I prefer the Direct method (used seldom these days) because it shows if sales are increasing and other items the indirect method doesn't show.

Think of it this way, EBITDA can be adjusted based on someone buying out a company and running the company. If you purchase the company, merge it into your company, or do an IPO with your company, you can eliminate debt, add debt, reduce taxes by an offsetting company's carbon credits, depreciation, government credits or losses. So, knowing if you're a buyer or a seller of a company, you can re-jigger the overall companies bottom line based on what you(combining or spinning off companies) can bring to the table.

Sometimes the whole is worth more in pieces. Sometimes pieces put together are worth more due to efficiencies.

EBITDA: Definition, Calculation Formulas, History, and Criticisms

EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an alternative measure of a company's overall financial performance.

www.investopedia.com

 

[amnesia999]

Good Lord, man (assuming you are male, but that may be a bad assumption), is there anything you don't know something about? You seem to post mostly on topics related to economics, but also ice, so-called fire phones, politics, etc. etc. etc.

 

[cowboypants]

or put in index funds and chill

 

[DarkRange55]

or put in index funds and chill

Literally the thing I push for the most of here if you look at my thread "managing money for rich families."
Yes, max your tax advantage accounts by dollar cost averaging into broadly diversified, low-cost index funds like VOO, VT, or SPY.

At least 95% of your holdings in indexes. Have cash for a rainy day fund. Indexes are a blanket. Then you can play around with 5% or just extra money on some speculative plays if you want.

I've had different jobs where I have to value a company. At one of my old jobs, I'd present one idea a week. Between screening and a deep fundamental dive it would take between 30-50 hours per company depending on how complicated the business was.
It's also fun to look at company balance sheets (because I'm nerdy lol).

 

[cowboypants]

Literally the thing I push for the most of here if you look at my thread "managing money for rich families."
Yes, max your tax advantage accounts by dollar cost averaging into broadly diversified, low-cost index funds like VOO, VT, or SPY.

At least 95% of your holdings in indexes. Have cash for a rainy day fund. Indexes are a blanket. Then you can play around with 5% or just extra money on some speculative plays if you want.

I've had different jobs where I have to value a company. At one of my old jobs, I'd present one idea a week. Between screening and a deep fundamental dive it would take between 30-50 hours per company depending on how complicated the business was.
It's also fun to look at company balance sheets (because I'm nerdy lol).

Haha yeah if you are interested in it, it's a lucrative hobby. I'm really bad at math so

 

[DarkRange55]

Haha yeah if you are interested in it, it's a lucrative hobby. I'm really bad at math so

In the book A Ransom Walk Down Wall Street, it says buying individual stocks is random and they go up and down randomly. If you look at every stock picker, some stocks go massively up and some massively down. The question is, are you really good at stock picking or are you just lucky if a lot of the stocks you bought recently went up a lot? It might just be a thing of probability where there's one person thar buys ten stocks and they all go up. It could just be pure luck like flipping a coin. Sometimes stock with high PE ratios are undervalued.

Almost all people don't know what they are doing and even many knowledgeable people are wrong.

It takes a lot of work to accurately pick stocks. I think the technicals have zero value outside of a few days, which means the returns are not worth it.

To be good you need to have more understanding of a business, its competitors, the industry, and the macro than most everyone, and the money to invest in research.

I think it's a better investment for most people to focus on doing well at their day job (growing their skills).


Just keep maxing your tax advantage accounts, DCA into index funds.
Boglehead philosophy!

Haha I sympathize with you. I have dyslexia

 

[cowboypants]

In the book A Ransom Walk Down Wall Street, it says buying individual stocks is random and they go up and down randomly. If you look at every stock picker, some stocks go massively up and some massively down. The question is, are you really good at stock picking or are you just lucky if a lot of the stocks you bought recently went up a lot? It might just be a thing of probability where there's one person thar buys ten stocks and they all go up. It could just be pure luck like flipping a coin. Sometimes stock with high PE ratios are undervalued.

Almost all people don't know what they are doing and even many knowledgeable people are wrong.

It takes a lot of work to accurately pick stocks. I think the technicals have zero value outside of a few days, which means the returns are not worth it.

To be good you need to have more understanding of a business, its competitors, the industry, and the macro than most everyone, and the money to invest in research.

I think it's a better investment for most people to focus on doing well at their day job (growing their skills).


Just keep maxing your tax advantage accounts, DCA into index funds.
Boglehead philosophy!

Haha I sympathize with you. I have dyslexia

Picking up value stocks are a thing but I think it's hard to maintain them and even find new ones. You can do things like staying invested but I think you cant likely have the spread out yours eggs thingy like mutual fund houses do.

Yeah that's what I hear too for regular people it's better to focus on their job skills. This takes a lot of time and energy

You write well, don't know if it's related to dyslexia or not :p

 

[DarkRange55]

Picking up value stocks are a thing but I think it's hard to maintain them and even find new ones. You can do things like staying invested but I think you cant likely have the spread out yours eggs thingy like mutual fund houses do.

Yeah that's what I hear too for regular people it's better to focus on their job skills. This takes a lot of time and energy

You write well, don't know if it's related to dyslexia or not :p

I had trouble learning to read, write and do math when I was young. But I perused post-graduate studies in mathematical physics. Researched after my PhD but ended up ultimately in the financial arena.

I teach both value investing and Bogle style…hard to beat market longer term, so diversified vanguard portfolios work.

As a general rule, should one always buy the undervalued asset - If you can identify before others. Very hard.

If you want to find a good potential undervalued 10X stock, Peter Lynch said you're better to look in the small and midcaps instead of the large cap and microcap. It's not a good strategy for someone who isn't going to do the work to model the business, etc. Search for value in the small and mid-cap and the large cap that don't have hype in them.

Beyond Big Names: The Case for Small- and Mid-Cap Stocks

Small- and mid-cap stocks have historically outperformed large caps. What are the opportunities and risks to consider?

www.visualcapitalist.com

 

[Blurry_Buildings]

Or be like me and throw what little money you have into rocket lab with blind faith and a little stupidity

 

[DarkRange55]

Or be like me and throw what little money you have into rocket lab with blind faith and a little stupidity

Whats the thesis?

Picking up value stocks are a thing but I think it's hard to maintain them and even find new ones. You can do things like staying invested but I think you cant likely have the spread out yours eggs thingy like mutual fund houses do.

Yeah that's what I hear too for regular people it's better to focus on their job skills. This takes a lot of time and energy

You write well, don't know if it's related to dyslexia or not :p

Also thank you!

To invest in individual stocks is something like gambling. Most of the time, riskier than gambling.

There is certainly risk. And most people don't have the time or knowledge or resources to measure that risk well I think.

The level of risk depends. I personally think very few people should invest in individual stocks. Usually only works if you 1) know finance well, 2) have all day to research, 3) have lots of money, and 4) have the right emotional temperament.
Most people would make more money just developing a skill and making money with that.

I've had luck/success (especially in the US & Korean stock markets) but I also focus on index funds for the overwhelming majority.

 

[Blurry_Buildings]

Whats the thesis?

People like me put minimal effort into choosing a stock which they think is cool, make a small hobby out of reading news about their company, and get to dream about making tons of money. When the stock likely fails, they can post their giant negative grah online and laugh about it with their friends... although I've met someone who saw elon musk's interviews in the early 2010s and spent thousands recklessly trading options on tesla as a rideshare driver. He became a millionaire in his 30s...