medium · Corporate Credit Analysis fsa
An analyst is comparing two companies: one with heavy 'Goodwill Amortization' (under old rules) and one with only 'Equipment Depreciation'.
Why is EBITDA a better point of comparison than EBIT?
- EBITDA is more conservative overall since it deliberately ignores the value of acquired brand equity.
- Because Goodwill Amortization counts as a cash expense in certain reporting jurisdictions and GAAP regimes.
- EBITDA adds back all non-cash charges, neutralizing the effect of different intangible asset histories
- Because EBIT already sits after interest, which makes it non-comparable between firms carrying different debt levels.
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More Corporate Credit Analysis fsa practice
- What is the company's Funds From Operations (FFO)?
- If revenue is $500M, variable costs are 60% of revenue, and fixed costs are $100M, what is
- What is the company's Days Sales Outstanding (DSO)?
- What is the company's Free Operating Cash Flow (FOCF)?
- What is the company's Current Ratio?
- What is the most likely credit implication?
- What is its Free Operating Cash Flow (FOCF) conversion rate from EBITDA?
- Which firm exhibits higher quality of earnings?