In the 2000 Berkshire Hathaway annual report, Warren Buffett stated, “References to EBITDA make us shudder–does management think the tooth fairy pays for capital expenditures?” Additionally,
… full reporting means giving you the information that we would wish you give us if our positions were reversed. What Charlie and I would want under that circumstance would be all the important facts about current operations as well as the CEO’s frank view of the long-term economic characteristics of the business.
2000 Berkshire Hathaway Annual Report
I cannot agree more. If you are a longtime reader of Buffett and Munger, you know their position on EBITDA, which includes this discussion:
As much as I appreciate their emphasis on cash vs. EBITDA, I disagree with Buffett’s definition of free cash flow.
He calls free cash flow operating cash flow less maintenance CapEx. That’s close, yet far from a fuller definition, especially where the business is burdened with excessive debt.
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