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Comment by nappy-doo | Hacker News Reader

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.)

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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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