We'll presume you know what EBITDA is. If not, watch the James Cameron directed video on our site.
As you now know after having watched (thank you for the view, please click on the ads), EBITDA itself is not a GAAP term. That is, it does not conform to any formal structured set of accounting rules, and that means that EBITDA can be presented in a number of ways. Or, said another way, the EBITDA number itself gives accountants a license to lie, cheat, and deceive when presenting the actual number.
Most of this magic happens in their having flexibility to define the rate at which elements on the EBITDA calculation for amortization and depreciation are ratably taken into consideration. That is, the computer system might be depreciated over three years or thirty. Should we capitalize our customer marketing expenses, or just expense them?
So EBITDA itself is already a squishy accounting metric. But then if we adjust EBITDA, the squishiness becomes warm Jello. All kinds of excuses derive from companies apologizing for bad operating performance with "adjusted EBITDA numbers." That lawsuit from the Singing Lawn Mower buyer was a one-time thing. So we're backing the costs of defending 2020 The Defeeting as a one-time charge. Never happen again. Really. So we're adjusting the EBITDA number to ignore those costs.
Related or Semi-related Video
Finance: What is GAAP?21 Views
Finance allah shmoop what is a gap Yeah not this
Nor this Nor this gap is an accounting term that
stands for generally accepted accounting principles And it is basically
the accounting code of hammurabi or the ten commandments that
is There are lots and lots and lots of ways
that clever bean counters could define and or account for
the notion of profits lots of ways to recognize revenues
versus sales and lots of ways to think about how
much that ten commandment frisbee factory is appreciating in value
each year Well the world according to gaff outlines the
structure under which accountants must you know count beans the
basic idea Well sort of in the vein of the
golden rule that is do unto others as you'd have
them do unto you Gap requires that accountants always present
their numbers in the most reasonably conservative manner possible such
that they never overstate how profitable or how well the
company is doing Gap is the framework the map the
religion and the destinations we want to go inside this
neck of the accounting woods are three income statement cash
flow statement balance sheet will none of these three key
elements mean anything however unless they all follow the same
rules they're linked like gears in an overpriced swiss watch
and the eighteen zillion individual rules on their own mean
nothing like what is revenue Is it a dollar you
collect in cash at a video game arcade booth Is
it the promise to pay that dollar in a year
Well there are lots of ways to account for this
notion of revenue so don't think of gaff isa siri's
of rules rather think of it as this you know
key mathey kind of finance e a county religion it's
all about quote doing right unquote and part of that
issue is a natural conservatism that has to come with
it kind of amish you'd think would be a good
gap Accountants Well if you're thinking about how to account
for five dollars promised to you in a year well
you have to recognize that there is risk you won't
collect it and that money a year from now is
worth less than its face value and well that you
should categorise those revenues way off in the distance differently
from how you'd categorize collecting the five dollar bill in
cash that day and putting it in your cigar box
there right So gap is basically the force in accounting 00:02:26.44 --> [endTime] May it be with you
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