EBITDA

This topic contains 3 replies, has 2 voices, and was last updated by Avatar of gromit gromit 1 year, 5 months ago. This post has been viewed 70 times

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  • Avatar of ddnguyen
    ddnguyen
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    Hi tutor

    Could you tell me the disadvantages of EBITDA

    Thanks tutor alot


    Avatar of gromit
    gromit
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    Ignores changes in working capital

    Does not make allowance for replacement of non-current assets

    Susceptible to manipulation – as are all profit-based measures.


    Avatar of ddnguyen
    ddnguyen
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    could you explain more detailed about ” Does not make allowance for replacement of non-current assets”?

    thanks alot


    Avatar of gromit
    gromit
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    Well, EBITDA is, by definition, before depreciation. Yet enough profit/cash has to be retained to replace non-current assets when they wear out. EBITDA might overstate how an organisation is doing because it does not charge for the wearing out of non-current assets.

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