Why I Hate EBITDA - Part II

The second reason I hate EBITDA is a behavioral one. It gives management a crutch to lean on, and causes them to focus on the wrong measures.

“Well, we grew EBITDA last quarter.”

As a shareholder and long-term investor, I want to know what true cash flow you are retaining this year after investing in your business. That’s what counts.

Many companies also create incentive programs for management based on EBITDA - again incentivizing management to engage in deviant behavior.