by Staff
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
  • Taxes
  • 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.

  • TRUE

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?

  • GAAP
  • non-GAAP

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?

  • Good
  • Bad