Critique of EBITDA and Accounting Practices by Andy Marino

Study Notes

Andy Marino of Berkshire Hill voiced concerns against using Alternate Financial Measures like EBITDA for business performance evaluation.
He criticized the incompleteness of Generally Accepted Accounting (GAAP) and argued for necessary adjustments.
Marino expressed his skepticism towards EBITDA being used as a shorthand for cash flow and questioned the validity of the entire concept of recasting accounting data.
He highlighted the importance of ignoring Goodwill amortization, as it was not an economic expense in Berkshire's perspective.
Marino emphasized the issue of pension assumptions causing phantom earnings.
He argued that depreciation is a real expense and a significant cash outflow for businesses, with significant consequences if ignored.
The text also mentioned the problem of understated pension fund accounting and post-retirement medical liabilities in America.
Companies recording pension income in the hundreds of millions while being underfunded in the billions were criticized for their denial of reality and unwillingness to face the consequences.
The text implied that some reputable people justify not counting compensation expenses (like stock options) as a way to maintain artificially high stock prices.
Marino expressed his frustration with the denial of reality in accounting and compared it to making engineering wrong when building a bridge.
He implied that some people, even those who are reputable and may be worthy of trust, could be both crazy and crooked when it comes to accounting.

Description

This quiz covers Andy Marino's criticisms of using EBITDA as a shorthand for cash flow, questioning the validity of recasting accounting data, highlighting issues with pension assumptions, depreciation, and understated pension fund accounting. It also discusses the criticism of companies for not facing the consequences of underfunded liabilities and the denial of reality in accounting practices.