Why Charlie Munger HATED EBITDA

EBITDA serves as a non-GAAP metric for estimating business cash flow by adding interest, taxes, depreciation, and amortization back into net income. Popularized by cable mogul John Malone, the metric allowed capital-intensive businesses to secure higher loan amounts by focusing on cash generation rather than net earnings. While it facilitates comparisons between companies with different capital structures, Warren Buffett and Charlie Munger criticize the metric as "bullshit earnings." They argue that ignoring depreciation is nonsensical because it represents a real, upfront cash outlay for assets. Furthermore, EBITDA excludes critical costs like taxes and stock-based compensation, making it a prime tool for management to manipulate financial results and obscure a company's true earnings power. Investors should instead prioritize metrics like owner earnings and return on equity to ensure transparency and accuracy in financial analysis.