5 More Forex mastermind review Companies Miscalculate EBITDASep. Regulation G governing the calculation of non-GAAP measures such as EBITDA.
Starting in 2007, I reported improper EBITDA calculations by Overstock. After a brutal yearlong public battle, Overstock. In this blog post, I will report erroneous EBITDA calculations by five more public companies: A. First, let’s review how EBITDA is supposed to be calculated. 47226 describes EBIT as “earnings before interest and taxes” and EBITDA as “earnings before interest, taxes, depreciation and amortization. What GAAP measure is intended by the term “earnings”?
May measures other than those described in the release be characterized as “EBIT” or “EBITDA”? Answer: “Earnings” means net income as presented in the statement of operations under GAAP. Measures that are calculated differently than those described as EBIT and EBITDA in Exchange Act Release No. 47226 should not be characterized as “EBIT” or “EBITDA” and their titles should be distinguished from “EBIT” or “EBITDA,” such as “Adjusted EBITDA.
In other words, the only way to properly compute EBITDA under Regulation G is by starting the calculation with net income and adding back only interest, taxes, depreciation and amortization. A public company cannot add back other items such as stock-based compensation costs, impairments of fixed assets, or anything else to compute EBITDA. SEC Division of Corporation Finance review of CGG Veritas EBITDA calculation illustrates that stock-based compensation cannot be included in EBITDA calculation. The acronym EBITDA refers specifically to earnings before interest, tax, depreciation and amortization. However, your measure also adjusts earnings for stock option expense.
We will not object to your using such a measure as a liquidity measure but request that you rename it to avoid investor confusion. Penson Worldwide, and Comtech Telecommunications erroneously included stock-based compensation in their EBITDA calculations. We note that your calculation of EBITDA in the press release furnished as an exhibit includes an adjustment for goodwill impairment charges. As such, the non-GAAP measure should not be characterized as EBITDA.
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and the goodwill impairment charge. Animal Health erroneously included goodwill impairment, stock-based compensation, and acquisition costs in its EBITDA calculation. Animal Health’s recent 8-K report below. Schawk erroneously included impairment of goodwill, impairment of long-lived assets, non-cash restructuring charges, and stock-based compensation in its EBITDA calculation.
Penn National Gaming was the worst offender in erroneously calculating EBITDA of all the companies discussed so far. Empress Casino Hotel fire, depreciation and amortization, and gain or loss on disposal of assets, and is inclusive of loss from unconsolidated affiliates. In addition, stock compensation, impairment losses, Empress Casino Hotel fire, gain or loss on disposal of assets, and loss from unconsolidated affiliates cannot be properly included in an EBITDA calculation. CFOs, Audit Committees, and auditors of all the public companies need to study SEC rules governing the calculation of non-GAAP measures such as EBITDA and follow them. I will continue tracking future financial reports, especially reports issued by the companies cited here, to see if they miscalculate EBITDA and violate Regulation G again.