Saying that a profit excludes interest payments for a bank is like telling GM to exclude the cost of steel.
I'm claiming its a way to show a big number even when a firm is not really doing that well.
A perfect example is the sale today of $3 billion preferred by Wachovia, paying 8% for ten years. Are they really going to be able to make a profit on these funds that will exceed 8% (even with exorbitant credit card charges), or is it a sign that they are in distress? Next year they will show an EBITDA number that omits this charge. What will that indicate about "creation" of profits? Policies not Politics ---- Daily Landscape
Sale of a bond --if I understand you correctly-- is a long term liability, a balance sheet item. Quarterly and annual amounts of interest paid to bondholders would be engrossed in the I of ITDA on the P&L. It's effect is to reduce Wachovia's taxable income. Interest earned increases the taxable income of the corporation. Similarly, DA (and "deferred tax" payments) modify taxable income of the current year. Whatever amount of net income the corporation does not wish to distribute as dividend to shareholders is the true "profit," i.e. retained earnings or surplus flow of funds at tax year end.
And we've read quite a bit about that over the past decade in the form of share buybacks and depressed wages (productivity). It's net effect --"market" inference-- is to raise the value of price per share outstanding.
So EBITDA is not the number by which the "profitability" of the ongoing concern is valued. Anyhow the "market" is more concerned with predicting future (retained) earnings. MSM focus on growth and "profit" from quarter to quarter is, to my mind, an expression of relative disinterest in the fundamental operating structure of a business.
There's more to learn about applicable GAAP, it's true. For this reason alone wise ones always read the footnotes of ARs. Diversity is the key to economic and political evolution.
