Is EBITDA necessary for valuing a company?

[DarkRange55]

EBITDA is like this weird adjusted cashflow method it looks like where you add back interest, taxes, depreciation, amortization. Whereas on the statement of cashflows you also add back depreciation & amortization but you have other stuff that they add back. Its all the non-cash expenses and accounts where it changes working capital on the balance sheet. So you're actually seeing where the cash went.

So why not just use the statement of cashflows?
Good question.

Yes, simple cashflows are decent approximations, but when you take value based finance, people try adjust for all tax based (interest and debt) and other frictions... that way you have some sort base and comparable cashflows to value investment decisions and company value. EBITDA is a more comparable view of the profitability of the business ex all the out her expenditures. Like if they cut back, what is the profitability.

There are two types of cashflow statements, Direct and Indirect cashflow statements. I prefer the Direct method (used seldom these days) because it shows if sales are increasing and other items the indirect method doesn't show.

Think of it this way, EBITDA can be adjusted based on someone buying out a company and running the company. If you purchase the company, merge it into your company, or do an IPO with your company, you can eliminate debt, add debt, reduce taxes by an offsetting company's carbon credits, depreciation, government credits or losses. So, knowing if you're a buyer or a seller of a company, you can re-jigger the overall companies bottom line based on what you(combining or spinning off companies) can bring to the table.

Sometimes the whole is worth more in pieces. Sometimes pieces put together are worth more due to efficiencies.

EBITDA: Definition, Calculation Formulas, History, and Criticisms

EBITDA, or earnings before interest, taxes, depreciation, and amortization, is an alternative measure of a company's overall financial performance.

www.investopedia.com

 

[amnesia999]

Good Lord, man (assuming you are male, but that may be a bad assumption), is there anything you don't know something about? You seem to post mostly on topics related to economics, but also ice, so-called fire phones, politics, etc. etc. etc.

 

[cowboypants]

or put in index funds and chill

 

[DarkRange55]

or put in index funds and chill

Literally the thing I push for the most of here if you look at my thread "managing money for rich families."
Yes, max your tax advantage accounts by dollar cost averaging into broadly diversified, low-cost index funds like VOO, VT, or SPY.

At least 95% of your holdings in indexes. Have cash for a rainy day fund. Indexes are a blanket. Then you can play around with 5% or just extra money on some speculative plays if you want.

I've had different jobs where I have to value a company. At one of my old jobs, I'd present one idea a week. Between screening and a deep fundamental dive it would take between 30-50 hours per company depending on how complicated the business was.
It's also fun to look at company balance sheets (because I'm nerdy lol).

 

[cowboypants]

Literally the thing I push for the most of here if you look at my thread "managing money for rich families."
Yes, max your tax advantage accounts by dollar cost averaging into broadly diversified, low-cost index funds like VOO, VT, or SPY.

At least 95% of your holdings in indexes. Have cash for a rainy day fund. Indexes are a blanket. Then you can play around with 5% or just extra money on some speculative plays if you want.

I've had different jobs where I have to value a company. At one of my old jobs, I'd present one idea a week. Between screening and a deep fundamental dive it would take between 30-50 hours per company depending on how complicated the business was.
It's also fun to look at company balance sheets (because I'm nerdy lol).

Haha yeah if you are interested in it, it's a lucrative hobby. I'm really bad at math so

 

[DarkRange55]

Haha yeah if you are interested in it, it's a lucrative hobby. I'm really bad at math so

In the book A Ransom Walk Down Wall Street, it says buying individual stocks is random and they go up and down randomly. If you look at every stock picker, some stocks go massively up and some massively down. The question is, are you really good at stock picking or are you just lucky if a lot of the stocks you bought recently went up a lot? It might just be a thing of probability where there's one person thar buys ten stocks and they all go up. It could just be pure luck like flipping a coin. Sometimes stock with high PE ratios are undervalued.

Almost all people don't know what they are doing and even many knowledgeable people are wrong.

It takes a lot of work to accurately pick stocks. I think the technicals have zero value outside of a few days, which means the returns are not worth it.

To be good you need to have more understanding of a business, its competitors, the industry, and the macro than most everyone, and the money to invest in research.

I think it's a better investment for most people to focus on doing well at their day job (growing their skills).


Just keep maxing your tax advantage accounts, DCA into index funds.
Boglehead philosophy!

Haha I sympathize with you. I have dyslexia

 

[cowboypants]

In the book A Ransom Walk Down Wall Street, it says buying individual stocks is random and they go up and down randomly. If you look at every stock picker, some stocks go massively up and some massively down. The question is, are you really good at stock picking or are you just lucky if a lot of the stocks you bought recently went up a lot? It might just be a thing of probability where there's one person thar buys ten stocks and they all go up. It could just be pure luck like flipping a coin. Sometimes stock with high PE ratios are undervalued.

Almost all people don't know what they are doing and even many knowledgeable people are wrong.

It takes a lot of work to accurately pick stocks. I think the technicals have zero value outside of a few days, which means the returns are not worth it.

To be good you need to have more understanding of a business, its competitors, the industry, and the macro than most everyone, and the money to invest in research.

I think it's a better investment for most people to focus on doing well at their day job (growing their skills).


Just keep maxing your tax advantage accounts, DCA into index funds.
Boglehead philosophy!

Haha I sympathize with you. I have dyslexia

Picking up value stocks are a thing but I think it's hard to maintain them and even find new ones. You can do things like staying invested but I think you cant likely have the spread out yours eggs thingy like mutual fund houses do.

Yeah that's what I hear too for regular people it's better to focus on their job skills. This takes a lot of time and energy

You write well, don't know if it's related to dyslexia or not :p

 

[DarkRange55]

Picking up value stocks are a thing but I think it's hard to maintain them and even find new ones. You can do things like staying invested but I think you cant likely have the spread out yours eggs thingy like mutual fund houses do.

Yeah that's what I hear too for regular people it's better to focus on their job skills. This takes a lot of time and energy

You write well, don't know if it's related to dyslexia or not :p

I had trouble learning to read, write and do math when I was young. But I perused post-graduate studies in mathematical physics. Researched after my PhD but ended up ultimately in the financial arena.

I teach both value investing and Bogle style…hard to beat market longer term, so diversified vanguard portfolios work.

As a general rule, should one always buy the undervalued asset - If you can identify before others. Very hard.

If you want to find a good potential undervalued 10X stock, Peter Lynch said you're better to look in the small and midcaps instead of the large cap and microcap. It's not a good strategy for someone who isn't going to do the work to model the business, etc. Search for value in the small and mid-cap and the large cap that don't have hype in them.

Beyond Big Names: The Case for Small- and Mid-Cap Stocks

Small- and mid-cap stocks have historically outperformed large caps. What are the opportunities and risks to consider?

www.visualcapitalist.com

 

[Blurry_Buildings]

Or be like me and throw what little money you have into rocket lab with blind faith and a little stupidity

 

[DarkRange55]

Or be like me and throw what little money you have into rocket lab with blind faith and a little stupidity

Whats the thesis?

Picking up value stocks are a thing but I think it's hard to maintain them and even find new ones. You can do things like staying invested but I think you cant likely have the spread out yours eggs thingy like mutual fund houses do.

Yeah that's what I hear too for regular people it's better to focus on their job skills. This takes a lot of time and energy

You write well, don't know if it's related to dyslexia or not :p

Also thank you!

To invest in individual stocks is something like gambling. Most of the time, riskier than gambling.

There is certainly risk. And most people don't have the time or knowledge or resources to measure that risk well I think.

The level of risk depends. I personally think very few people should invest in individual stocks. Usually only works if you 1) know finance well, 2) have all day to research, 3) have lots of money, and 4) have the right emotional temperament.
Most people would make more money just developing a skill and making money with that.

I've had luck/success (especially in the US & Korean stock markets) but I also focus on index funds for the overwhelming majority.

 

[Blurry_Buildings]

Whats the thesis?

People like me put minimal effort into choosing a stock which they think is cool, make a small hobby out of reading news about their company, and get to dream about making tons of money. When the stock likely fails, they can post their giant negative grah online and laugh about it with their friends... although I've met someone who saw elon musk's interviews in the early 2010s and spent thousands recklessly trading options on tesla as a rideshare driver. He became a millionaire in his 30s...

 

[DarkRange55]

People like me put minimal effort into choosing a stock which they think is cool, make a small hobby out of reading news about their company, and get to dream about making tons of money. When the stock likely fails, they can post their giant negative grah online and laugh about it with their friends... although I've met someone who saw elon musk's interviews in the early 2010s and spent thousands recklessly trading options on tesla as a rideshare driver. He became a millionaire in his 30s...

 

[Blurry_Buildings]

I regret nothing


@DarkRange55

 

[DarkRange55]

In the book A Ransom Walk Down Wall Street, it says buying individual stocks is random and they go up and down randomly. If you look at every stock picker, some stocks go massively up and some massively down. The question is, are you really good at stock picking or are you just lucky if a lot of the stocks you bought recently went up a lot? It might just be a thing of probability where there's one person that buys ten stocks and they all go up. It could just be pure luck like flipping a coin. Sometimes stock with high PE ratios are undervalued.
Warren Buffet has done well enough to show that it is not entirely random - as has the Dow over decade timescales.
But pre-earnings stocks are more of a crap-shoot.

Why anything in the stock happens is for no reason. The stock market makes no sense.
No, many of the factors make sense. There is just a lot more noise than signal in the short run.

Nobody can predict it. It's just random. Occasionally somebody will become famous because they predicted some stuff but if you have enough people trying to predict something random, you will eventually have something that looks like a functioning model.
That is a major element, but not the only element.

That doesn't mean that it is, it just means that you've been lucky. It crashes because it crashes. Horoscopes for the wealthy. I don't think the Bank of Japan marginally raising its key interest rate lead to an economic crash in the American market. Its random or at the very least I can say the affects that lead to the outcomes that we see are so far reaching and impossible to speculate on you might as well be predicting where a wave is going to be any given second a week from now.
Yes, on a weekly basis.

There will be people who think that they understand the system and they'll say you can analyze currents and wind and we have the science for it. Ignoring the fact that these crashes happen repeatedly and people are always surprised. If this was predictable and scientific then it would be measurable, you're have repeatable consequences in a lab. The stock market is based on hype. What is hype, if not feelings? Its all vibes.
If a reliable way to predict it were known, then that would change its behaviour to negate that way,

The stock market is just gambling but called speculative investment (same as gambling but over a longer time). I'm saying nobody could have predicted the wave would be this hight at this location at this point in time. And commenters say, it's a windy day. Maybe the wave is three foot over to the left. Doesn't necessarily mean that any specific outcome is going to happen. We're not talking about repeatable science. You can find patterns in horoscopes, too, if you really want to dig for them. In reality, the stock market, the value of these shares, all this economic stuff is fake, its smoke. None of it has to do with real widgets, real things, people working jobs, food in mouths, houses getting built. It's not material. Its all based on the vibes and speculations, which is why they call it speculative investment, on people who stand to make or loose a lot of money based on how other people hype up the thing they're already invested in.
Some companies make real things and have real earnings.

Thats why Tesla is valued higher than every other car company even though they produce fewer cars. They do less for society but they are worth more and its because other people say they are.
They made electric cars sexy, and people are betting that they'll do it again with robots. Musk has a pretty good track record on 'what', even if he is not so good on 'when'.

There is no such things as an objective evaluation of a share's worth or a company's worth. They try to make it make sense because they don't want you to know, crypto is just an unregulated stock market. Entirely hype driven. No underlying worth to it. How can the shares for a company plummet to nothing when the company still owns the same land and buildings and pays the same employee wages. Its just confidence. The stock market is better regulated than crypto, there are more eyes on how it functions, there's a little more control. Hut only a little bit. Why does a crypto crash happen? Because people lost confidence. Why did they loose confidence? Vibes.

Invidia's stock price tripled. Have they produced triple the things? Do they own triple the things? Is the sell value of their items tripling in price? The perceived value of copy rights, trademarks, patents? No. Its hype, it's always hype, its speculation. When has revenue had anything to do with the share price of a company? Revenue and share price are correlative? Look at Tesla's revenue sales vs other car companies. It's just hype. It's very loosely correlated because it's all hype. I can't believed that the combined value of the physical objects that they own that make up the ownership of the company depreciated that much that quick. Did they sell off a bunch of buildings? All of these metrics are just determiners of how much hype there is which also how Bitcoin works…
The S&P500 erased $2.1 trillion in market cap. I can't believe that spontaneously today $2.1 trillion worth of stuff vanished into the ether. Thats like the GDP of a bunch of countries combined. I can't believe it all vanished and then sometime in the indeterminate future it will all come back somehow. This is all definitely determined by real world events

It's like when people say stuff like Elon Musk just lost $40 billion. What they mean is the shares he owns have been arbitrarily evaluated at a lower value than they were before. He hasn't actually lost anything. People interpret that as $40 billion got burned into nothing. My friend's company has had a negative PE ratio for a decade and the stock has gone from $30 to $220.
The stock market is legitimized by the state which crypto would like to be. Crypto is just the stock market without the regulation. What a company does or doesn't do doesn't have anything to do with their share prices. Did Gamestop start doing a lot more when people invested in it as a meme stock? How much is Truth Social doing with the speculative right-wing investors as a meme rock. What about Radio Shack? Why is it that so much stock market volatility only happens after the company reports its earnings or losses? Doesn't that indicate that its entirely hype driven? If it was actually determined by the productivity of the company wouldn't there then not need to be quarterly releases that are mandated by the government to explain how well the company is doing. Because if it was productivity, then those releases which are hype driven, you could just naturally derive the right share price. Why would you need the disclosure if it is the success itself that the share price is determined from? Could a company just lie about their success and then enjoy much higher share price - is that not just the share price is determined by hype and not by the actual productivity? Its almost like crypto but with regulations. Its almost like the performance pf the company isn't whats driving the investment but rather public confidence in the company. And the confidence can be manufactured either by lying which is illegal at least for now. Invidia is up 40 times in the last few years. Did they produce 40 times as much stuff? Its all hype.

How much of stock market sales are determined by people trying to control a company of get on the board of directors? Thats like share if you're at the highest level, 99.99999% of market people are just trying to make money. Thats not really indicative of the broader trend. Revenue and share place are not correlated because you can say this is why Nvidia price went up, but it's not the same for another company. Where is this money coming from? What are they selling that is making them more money? How many cars are being made? Where are the widgets?
The stock market is driven by the insane hype of Silicone Valley tech venture capitalists who make a ton of money in no time at all doing nothing and then some go bankrupt because thats how it is. It's all luck, no skill, nobody knows what they're doing. It's just bubble money getting traded around.
You can do the same with crypto, why does it go up and down? There is a more advanced underlying layer to it where you can understand the specific trends of why crypto might have been worth more or less. There were people who did analysis of the crypto bubble popping two years ago.
Nobody runs the stock market but it has big players that manipulate the market for their and their client's benefit

I'd be very careful on speculating on the future market because it's like the equities, Bond, Options and other markets. The people that manage the hundreds of billion and a few trillion dollar portfolios manipulate the market for their and client's benefit, not yours. But, it's as it is at a Poker table, when you look around the table to identify who are the fish, and you don't see any... then you are the fish… So don't be a Fish.