Your final answer should include a discussion of 3 to 5 of the 8 issues below, so your plan should make a provisional selection of the issues
Assessment Instructions
The Main Assignment
Your final answer should include a discussion of 3 to 5 of the 8 issues below, so your plan should make a provisional selection of the issues you will explore as well as answering the main question itself which is:-
Discuss the proposition that EBITDA is the single best measure of corporate value and performance from the equity investor’s point of view(20 marks). You will use the article attached as the basis for your discussion, but you are expected to find and present alternative views by other writers as well.
1. Is the effect of geography controllable and variable for every significant expenditure item and should performance measures be scaled to net off such differences e g in accounting, tax?
2. Is the possible manipulation of depreciation and amortisation charges more susceptible to fraudulently misleading practice than level 3 fair value calculations are?
3. Is the author’s idea of clean measurement of income the same as the idea of a clean surplus? What is the difference if any?
4. “The very expenses that EBITDA ignores are in fact operational expenses required in the day to day operations of the company.”
5. Interest is an operating expense for businesses such as steel and other high leverage businesses. Does this mean interest should be included in the measure of earnings in these cases, in all cases or in no cases?
6. Tax minimising strategies such as through debt financing of acquisitions is also arguably an operating expense, so does that necessarily make EBITDA misleading?
7. Which of WorldCom, Qwest and Global Crossing is the most serious case of fraduent capitalization of expenses and why?
8. Higson says “Revenue anticipation is reversed in working capital investment” in what way is this true and to what extent?
9. Apple and Exxon are compared for 2012 for their gap between EBITDA and operating cash flows. How far has the picture changed from 2012 to 2017?
10. Explain the effects of stock based compensation in the Twitter accounts on the real and apparent profitability in 2014? Is the picture still the same?
Assessment criteria for the main assignment
Effort in researching to find telling examples of accounts for which EBITDA is conspicuously relevant and others where it is conspicuously irrelevant 20% of 20 marks, i.e. 4 marks
Effort in reviewing scholastic and professional literature to understand the issues and in writing up the answer clearly and tidily will attract 20% of the 20 marks
Demonstrating a clear understanding of the issues by well evidenced and logical argument will carry another 20%
Avoidance of dogma, errorand confusion of fact with opinion carries a further 20%
Originality, thoughtfulness, and ability to integrate all the material used carries the remaining 20%
Credit pass grades will show at least 50% in either of the first two criteria above; distinctions will show at least 50% in both those criteria. Higher distinctions, if any, will also score highly for originality and thoughtfulness.
Accounting & FinanceEBITDA measures an enterprise's overall financial performance. This ideal excludes expenses relative to debt through adding back interest costs. Taxes are as well summed up to earnings. This is simply a measure of profitability. ...
EBITDA measures an enterprise's overall financial performance. This ideal excludes expenses relative to debt through adding back interest costs. Taxes are as well summed up to earnings. This is simply a measure of profitability.