As if Wall Street investing wasn't confusing enough, companies fill their earnings reports with conflicting metrics and lots of baffling acronyms. Test your knowledge of EBITDA, a controversial measurement of a company's financial health.
What does EBITDA stand for?
- The names of the six strings on a guitar
- Expenses before investments, taxes, depreciation and amortization
- Earnings before interest, taxes, depreciation and amortization
What is the standard accounting term for profit?
- Net income
- Gross income
- Gross revenue
What is the standard equation for calculating net income?
- Gross revenue plus interest
- Gross revenue minus operating expenses
- Gross revenue minus all business expenses
Which of the following is NOT a good example of a business expense?
- Raw materials
- Apartment rent
- Employee salaries
Which of the following business expenses is considered a "non-cash" charge?
- Interest paid on loans
- Depreciation and amortization
What is the main advantage of using EBITDA to measure a company's financial health?
- It strips away arbitrary expenses like taxes, interest and depreciation that vary greatly from company to company, revealing a more accurate measure of the company's ability to make money.
- It boils all of a company's confusing financial data down to one easy number.
- Long acronyms are an easy way to confuse investors.
What does the acronym OIBDA stand for?
- Office income before debt and appreciation
- The Office of International Building and Development Analysis
- Operating income before depreciation and amortization
What is the main difference between EBITDA and OIBDA?
- OIBDA doesn't exclude taxes and interest
- OIBDA limits itself to operating income, not net income from all sources
- One letter
What was the first industry to popularize the use of EBITDA in earnings reports in the 1980s?
- The airline industry
- Velcro manufacturers
- Companies engaged in leveraged buyouts
EBITDA is an accurate measurement of which of the following?
- Paper earnings
- Cash earnings
- Cash flow
What is the main difference between cash flow and earnings?
- Cash flow includes interest received from investments
- Cash flow includes both paper earnings and cash transactions
- Cash flow indicates exactly when cash changes hands, not just when a transaction is made
True or false: EBITDA is an excellent substitute for cash flow.
EBITDA is calculating using what general accounting method?
- Cash accounting
- Accrual accounting
- Process flow accounting
What does the acronym GAAP stand for?
- General Association of Accounting Professionals
- Generally accepted accounting principles
- Georgia Assembly of Athletic Psychology
Is EBITDA considered a GAAP or non-GAAP calculation?
Which two expenses excluded by EBITDA directly impact the cash flow of a company?
- Depreciation and amortization
- Interest and taxes
- Taxes and depreciation
Which of the following is the name of a common technique for inflating short-term earnings?
- "Stuffing the pipe"
- "Pumping the numbers"
- "Fattening the turkey"
What is the danger of ignoring depreciation expenses by using EBITDA?
- Young companies make significant capital investments in equipment and those expenses should be considered over the long-term.
- Depreciation is a considerable long-term cash expense
- Depreciation costs increase every year
EBITDA is a useful measurement for which of the following?
- Comparing the profitability of two similar companies
- Approximating levels of working capital
- Predicting how much a company is going to grow
Does EBITDA have a bad or good reputation with most analysts and investors?