EBITDA is used as a tool by many businesses men when it comes to making an investment in a company. EBITDA was created in the year 1980 as a tool to measure the stability of the company and mostly to know if the company would be able to pay interest if it needed reconstruction.
Warren Buffet is aware that using EBITDA as an only tool to measure the company’s cash flow is not liable and has made it clear that he dislikes EBITDA. EBITDA main purpose is to measure depreciation and amortization but ignores several other factors that could lead to a bad investment or ignoring a good investment.
Warren Buffet points out that EBITDA ignores the depreciation of value in some companies and could mislead into overstating their value, he compares big successful companies not using EBITDA in their annual statement because is a tool that is not totally accurate.
Warren Buffet is successful for some reason and it’s because he takes into consideration every factor that could determine a company’s success, he is very clear when saying that using EBITDA as the only tool to measure a company is not advisable, but I stead he advises to use another kind of measurements that are more accurate and could determine if a company is a good investment or not.
Just because the Oracle of Omaha is not using EBITDA it doesn’t mean is completely wrong, for some reason this tool is still being used just not by him. Clearly everyone uses different tools when it comes to investing and EBITDA is just not Warren’s Buffet favorite.