Charlie Munger, Warren Buffett’s business partner at Berkshire Hathaway, said that EBITDA, an accounting method that differs from GAAP (generally accepted accounting principles), is an inaccurate way to measure profits.
“I don’t like when investment bankers talk about EBITDA, which I call bulls— earnings,” Munger said, according to a CNBC report.
Uber said earlier this month that it expects to be profitable by the end of 2020, using EBITDA as a metric for that prediction.
Experts have told Business Insider that adjusted EBITDA allows Uber to define what expenses it includes or leaves out — “I don’t think it’s meaningful,” one expert said.
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Charlie Munger, Warren Buffet’s business partner at Berkshire Hathaway, slammed the accounting method used by some companies to measure profit, including Uber, saying the metric leads to “bulls— earnings.”
Munger said that EBITDA, which stands for earnings before interest, taxes, depreciation and amortization, is not an accurate measure of a company’s profitability, according to a report by CNBC. EBITDA differs from GAAP, which stands for generally accepted accounting principles.
“I don’t like when investment bankers talk about EBITDA, which I call bulls— earnings,” Munger said at a recent company shareholders meeting. “Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA. You’re almost announcing you’re a flake.”
Experts have previously told Business Insider that using adjusted EBITDA is not standard accounting and allows companies to leave out a variety of expenses.
Uber said earlier this month that it would be profitable by the end of 2020, using adjusted EBITDA as its profitability metric.
In an SEC filing, Uber defined its adjusted EBITDA metric, saying that among 13 items, it excludes “acquisition and financing related expenses”; “restructuring charges”; and “other items not indicative of our ongoing operating performance.”
While Uber lost $8.5 billion in 2019, its losses in the fourth quarter last year were less than analysts had expected.
An Uber spokesperson was not immediately available for comment.
By excluding expenses as it pleases, experts said that it’s not a surprise that Uber could say in the near future that it’s profitable.
Phillip Braun, a finance professor at Northwestern University, told Business Insider’s Troy Wolverton that “it’s likely” that Uber will hit its adjusted EBITDA profitability target, but that “I don’t think it’s meaningful… I view it as a vacuous statement.”
SEE ALSO: Here’s why business experts think Uber’s ‘profitability’ pledge is misleading and meaningless
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Source:: Business Insider – Tech