NFI what companies are talking about during earnings season? Let's spell it out.
NFI what companies are talking about during earnings season?
You’re not alone. Every quarter when the Flux team sits down to look through companies’ earnings reports, we feel like these companies are speaking a WHOLE other language.
But after a while, you get the hang of it.
Normally investors focus on cash flow, net income, and revenues as the basic measures of a company’s health. But more recently, companies have started to share their EBITDA too.
EBITDA stands for earnings before interest, taxes, depreciation and amortisation - what a mouthful! It’s often used when companies are talking about their profits.
Basically, EBITDA takes out the company’s expenses that are not related to the operations of the company day to day (think: salary, rent, subscriptions etc), and focuses only on its earnings.
This gives investors an overall view of a company’s operating performance - without taking into account all the expensive stuff like taxes and debt (which can vary significantly from year to year).
Investors will use EBITDA as a standard measure to compare companies against each other.
This way, if company X has 10 tractors and company Y has 114 cranes, you can still compare apples with apples because you’re only looking at their profitability.
However, it can be a little bit misleading. If you’re only looking at the good stuff without the bad stuff, a company can look better than it really is.
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