EBITDA leading to EBIT and then to ROIC; Accounting blogs

We literally called Jon Corzine. We called Jon Corzine because we knew that he knew about the economy, about the world markets, about how we had to respond.” –Vice President Joe Biden, talking about the people he asked for advice from during the financial crisis.

Jon Corzine recently resigned as the CEO of MF Global. The firm declared bankruptcy after making bad bets on European Sovereign debt.
The bankruptcy was the fourth-largest financial firm in U.S. history, and the eighth largest overall.

EBITDA into Perspective

We will finish our discussion on return on invested capital (ROIC) this week, but first let’s return to fundamentals. Joel Greenblatt uses (EBITDA minus maintenance capital expenditures (“MCX”) as his proxy for Operating Earnings or EBIT.

Many may have not seen the 36-page PDF on placing EBITDA into context*. Once we know MCX, we can subtract that estimated figure from EBITDA to arrive at pre-tax operating income–the bedrock upon which we divide by the amount of capital used to produce such income for calculating ROIC.

We will discuss MCX in another post.

EBITDA mentioned here: http://csinvesting.org/placing-ev-and-ebitda-into-perspective-case-studies/

*Placing EBITDA into perspective (36-page PDF): http://www.scribd.com/doc/66843869/Placing-EBITDA-Into-Perspective

Recent blog discussion on EBITDA: http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/542

Educational Blogs on Accounting and Financial Statement Analysis










Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.