CRE

(E)

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

• BLUF: It's a financial metric used to assess a company's profitability from its core operations.

• Breakdown:

  1. Earnings: This refers to the company's net income, which is its profit after accounting for all expenses.

  2. Interest: EBITDA removes interest expenses, as these are a function of the company's financing decisions (debt) rather than its core operations.

  3. Taxes: Similar to interest, taxes are excluded because they depend on the company's location and tax structure, not its core business activities.

  4. Depreciation and Amortization: These are non-cash expenses that account for the wear and tear of physical assets (depreciation) and the intangible assets (amortization) like patents. EBITDA adds these back since they don't represent a direct cash outflow.

• Why is EBITDA useful (2): By stripping out these non-operating expenses, EBITDA aims to provide a clearer picture of a company's ability to generate cash flow through its core business activities. This can be helpful for (1) Comparing companies: Especially across industries, EBITDA allows for a more standardized comparison of profitability by removing the effects of financing and accounting decisions. (2) Valuation: Investors and analysts sometimes use EBITDA as a benchmark when valuing a company.

• Things to keep in mind about EBITDA (2): (1) Not a perfect measure: EBITDA has its critics who argue it can be misleading by ignoring important expenses. (2) Not a replacement for net income: It's just one piece of the financial puzzle and shouldn't be used alone to judge a company's health. (3) Variations: There can be different ways to calculate "adjusted EBITDA" depending on the company, so be sure to understand the specific definition used.

Peter Harris.

• Book: Commercial Real Estate for Beginners by Peter Harris.

• Website: Commercial Property Advisors.

• Email: peter@commercialpropertyadvisors.com

• Case Studies:

  1. Waiter Buys 90-Unit Apartment No Money Down. -- BLUF: Discover how a 24 year old waiter from Louisiana purchased his first commercial property, a multi-million dollar 90 unit apartment complex, with no money down! His inspiring true story proves that all it takes is one commercial real estate deal to completely change your life!