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Comment by tmh79 | Hacker News Reader

Forecasting EBITDA profitability by Q4 2020

EBITDA profitability isn't profitability. It's profitability on all but accounting expenses, which are real expenses. It would be like saying, "I made 100k last year, before I paid my taxes, my mortgage, and my health insurance; but, I still made 100k!!!!!"

EBITDA is a terrible accounting metric that people use to hide REAL costs to doing business.

(Note there are reasons to use EBITDA, but in non-comparison environment [ie, an environment where you're talking about absolute metrics], it makes no sense.)

This is maybe a bad example because it is exactly how people talk about compensation. I’ve never heard anybody say “oh I made $70k last year after taxes and rent.”

Damn. That actually would be a better way of talking about compensation. It would seriously deflate some of the SV compensations and make other locations look more attractive.

They would if people were cash-flow producing assets to be bought and sold.

I think nappy-doo's point is what happens when taxes, mortgage, health insurance, food, shopping, etc is NOT taken into account. If you make $100k but spend $150k you're in the red, doesn't matter how effusively you celebrate making $100k.

I think nobody would say I made $70k after rent last year.

But net salary is what people often mention or look at when considering offers.

So, my net salary / take home pay is $X is what is normally talked about between people etc.

> I’ve never heard anybody say “oh I made $70k last year after taxes and rent.”

Really? That's pretty much how I and everyone I know talks about compensation.

They subtract their rent? Really? Taxes I understand. Or even 401(k), or benefits, or whatever else is between Gross and Net. But I've never heard someone deducting certain categories they spent their income on.

Maybe this is a regional thing?

"(Note there are reasons to use EBITDA"

What are those reasons? I've taken several accounting and "business from legal pov" classes in my life, and still I don't really understand why it's such a prominent metric. Like, either you use proper profit, or you use turnover - EBITDA has always seemed such an artificial inbetween to me.

EBITDA is a metric that's meaningful if you owned the whole business from the prospective of a larger company swallowing a smaller. For example, EBITDA says, "ok, if I were to price this whole business, and my cost of capital didn't change, I can use this metric to compare it to rewards of ownership of another." It allows you to "divide out" the accounting details of a business. (eg, I can borrow cheaper, or, I can use economies of scale to decrease some amortization cost, etc.)

It is largely bogus when discussing the overall metrics of a business, or using it in isolation.

Thank you, that clears it up for me.

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