I believe that EBITDA was a measure originally devised by merchant bankers at Warburg (RIP) as a tool for would-be acquirers to calculate whether or not their potential targets could finance their businesses. It is a prinicpally a cash flow measure but is now widely used by companies as an indicator of profitabillity which as G points out it really is not. Buffett and Co used to hate it especially as it is a measure taken before share and option awards to management and staff. These do not, of course, directly affect cash flow but they do affect other shareholders by diluting their ownership. The problem with Gulf Marine, as I see it, is not really to do with this at all. There is just too much debt and there seems to be an assumption that the interest costs will decline from here in the short-term (i.e. in the second half). I suspect this may be an error and I do not really think a 10% or so reduction in such a large debt balance (relative to the size of the company) is so significant. It is why I decided to leave it alone. But I must say that the client roster looks excellent and an examination of the directors' backgrounds seems to suggest they are extremely 'well connected'. But it is certainly high risk.
I believe that EBITDA was a measure originally devised by merchant bankers at Warburg (RIP) as a tool for would-be acquirers to calculate whether or not their potential targets could finance their businesses. It is a prinicpally a cash flow measure but is now widely used by companies as an indicator of profitabillity which as G points out it really is not. Buffett and Co used to hate it especially as it is a measure taken before share and option awards to management and staff. These do not, of course, directly affect cash flow but they do affect other shareholders by diluting their ownership. The problem with Gulf Marine, as I see it, is not really to do with this at all. There is just too much debt and there seems to be an assumption that the interest costs will decline from here in the short-term (i.e. in the second half). I suspect this may be an error and I do not really think a 10% or so reduction in such a large debt balance (relative to the size of the company) is so significant. It is why I decided to leave it alone. But I must say that the client roster looks excellent and an examination of the directors' backgrounds seems to suggest they are extremely 'well connected'. But it is certainly high risk.