Oana Labes, MBA, CPA
Transformative Finance Strategist, Coach & Speaker | Empowering CEOs & CFOs to Win with Decision-Ready Dashboards, Finance-Ready Strategies and Boardroom-Ready Reports | Founder & President, Financiario
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Your Adjusted EBITDA is Still Not Cash Flow.Here are 10 sneaky EBITDA Adjustments to be aware of. Depending on the side you're playing for, you may find yourself arguing pro or against these------๐ Linkedin restricts posts to 3,000 characters. Join 27,000 subscribers of The Finance Gem ๐ and enjoy my unabbreviated finance insights delivered every Saturday morning directly to your Inbox (link in my Linkedin profile)------1๏ธโฃ Provisionsโซ Guarantees. Future tax obligations. Asset Retirement Obligations. Asset impairment. Losses. Pensions. Severance costs.The traditional view is that these arenโt actual obligations and should be added back to EBITDA, especially when a lot of management assumptions which could later be provide incorrect are involved in determining the provisioned amounts. 2๏ธโฃ Non-operating incomeโซ This is usually passive income which isnโt related to the companyโs core operations.Most parties will agree that if the company isnโt actively in the business of generating that income, it shouldnโt be part of the companyโs EBITDA. 3๏ธโฃ Unrealized gains or lossesโซ The typical view is that paper gains and losses donโt belong in EBITDA.4๏ธโฃ One-time revenue or expensesโซ These are the result of non-recurring transactions.The typical view is that because they arenโt repeatable they do not belong in EBITDA. 5๏ธโฃ Foreign exchanges gains or lossesโซ These are the result of incidental transactions outside the companyโs core operations.If the company isnโt an FX boutique or exchange, FX gains and losses typically arenโt part of the companyโs EBITDA. 6๏ธโฃ Goodwill impairmentโซ This is a decrease in the value of goodwill reported following an acquisition. It is still typically considered a โpaper lossโ that doesnโt belong in EBITDA.7๏ธโฃ Asset write-downsโซ These are decreases in the value of an asset, usually following non-recurring events and the usual consensus is that because theyโre non-cash, they donโt belong in EBITDA. 8๏ธโฃ Litigation or insurance expenses outside the regular course of business.โซ These are the result of non-recurring transactions such as one-time lawsuits, large financing deals or outlier commercial contracts.Most will argue that if they arenโt repeatable, they donโt belong in EBITDA.9๏ธโฃ Owner compensation over/under market valueโซ In private companies, owners often donโt pay themselves a fair salary, or they pay themselves more than a comparable executive role would pay an employee.๐Share-based compensationโซ Some will argue that share-based compensation isnโt actual cash outflows while others will maintain that they are real expenses incurred to attract and retain executive level talent. What would you add?-----โซโซโซGet the knowledge and skills to accelerate your career and grow your business with my ๐๐๐ฌ๐ก ๐ ๐ฅ๐จ๐ฐ ๐๐๐ฌ๐ญ๐๐ซ๐๐ฅ๐๐ฌ๐ฌ (link in my Linkedin profile)-------โ Follow me for more finance, business, and cash flow insights.#entrepreneur #finance #business
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Oana Labes, MBA, CPA
Transformative Finance Strategist, Coach & Speaker | Empowering CEOs & CFOs to Win with Decision-Ready Dashboards, Finance-Ready Strategies and Boardroom-Ready Reports | Founder & President, Financiario
9mo
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Khaled EL-Shatoury
CEO at K&A company
9mo
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EBITDA focuses on the financial outcome of operating decisions by eliminating the impact of non-operating management decisions, such as tax rates, interest expenses, and significant intangible assets. Consequently, the measure gives a figure that clearly reflects the operating profitability of a business that can be compared with other companies by owners, investors, and stakeholders. It is for this reason that EBITDA is often preferred over other metrics when deciding which business is more attractive as part of a mergers and acquisition strategy.Thanks for your great roadmap
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Tom Pannett MBA, FCCA
Transformation SAP S4 Hana Cloud implementation | Lead Prince 2/ Lean Six Sigma O2C/P2P/R2R/GBS | Process Re-engineering | ERP implementation | Finance Manager | Finance Controller | Hybrid Transformation & BAU roles.
9mo
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Great list! this is similar to non-OPEX list aka below the line! At lot of time it pays to take items out of OPEX to flatter the Operating Profit, the assumption being that if they are not in OPEX they are not recurring core business costs rightly or wrongly!
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Dr Sanjeev Gupta
Healthcare Management || Strategy || Clinical & Operational Excellence || People Management|| Quality & Patient Safety
9mo
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Thanks, really useful stuff Oana
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Mohamed Afify
Helping founders to increase business value and travel agencies to match IATA standards through innovative financial solutions | Chief Executive Officer | Financial Consultant | Chief Financial Officer
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Financiario
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Depending on everyoneโs objectives these adjustments can indeed be used by both sides in a negotiation. Great reminder!
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Addapa Sharath Kumar
Board Member, Country Ops, 28 yrs of Transforming/Inclusive leadership, Corporate Strategy/Growth /BizDev-Sales /Mktg /Consulting/Profit ops /Topline /Bottomline achiever, Startup success, Rural Mktg expertise
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So thankful to u Oana .
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Diann L.
IT Program Manager
9mo
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How would a company calculate employee bonuses? Using EBITDA? Or not?
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Dan Ramey
President - Houston Financial Forensics, LLC; Forensic Accountant; Fraud Investigator; Expert Witness; Internal Auditor; Conference Speaker; Forensic Accounting Professor (Baylor & UH)
9mo
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You have the absolutely, best materials!! Thank you!
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Gabriele FD
Transforming Corporate Food Programs | Engage your team and grow your company with SmartBite | Unleashing Productivity & Empowering F&B Vendors in Southeast Asia
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Alfea Aguila , CPA Donatello Montrone
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Bogdan Munteanu
Managing Partner | Market Cap PR
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Pour les connaรฎsseurs... But not only for them (#finance experts): the awareness of these #EBITDA adjustments should be more widespread. Check out this useful post by Oana Labes, MBA, CPA! ๐
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Elizabeth (Betsy) Munnell
Business Development & Executive Coaching for Lawyers | Former BigLaw Partner
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Associates (and others) in transactional practices: Part of standing out from the crowd and generating the respect (and interest) of partners, clients, and opposing counsel is--my relentless refrain--demonstrating sufficient business acumen to knowledgeably discuss and negotiate the business terms of the transaction. So again, dispense with the "I'm not good at numbers" mindset and make sure the words are expunged from your conversations, even with yourself. You need to understand the crucial definitions of EBITDA and Adjusted EBITDA or switch practice areas. If you have learned (or even sort of learned) how to read simple financial statements you will find Oana Labes, MBA, CPA's list helpful. But don't assume that any given adjustment applies, that you couldn't think up others, or that negotiations won't get heated. This will depend on the particular circ*mstances of your client and its counterparty and the creativity of all involved. Importantly, whether your suggestions are accepted or not you will have demonstrated your value. Don't be afraid of speaking up. You do not have to be right--just informed.#lawyers #associates #EBITDA #businessacumen
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Shashikant C.
MBA candidate/student at The University of Auckland
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What is EBITDA? Learning some new terms and knowledge as preparation begins for the next quarter of MBA studies -- Financial return, risk and innovation. Thanks for this infographic to help explore this term
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Bhavesh K.
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๐ ๐๐ฎ๐๐ ๐ฆ๐๐ฒ๐ฝ๐ ๐๐ผ ๐๐๐ฎ๐น๐๐ฎ๐๐ฒ ๐๐ผ๐บ๐ฝ๐ฎ๐ป๐ ๐๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น ๐ฆ๐๐ฎ๐๐ฒ๐บ๐ฒ๐ป๐๐: ๐ฆ๐ฝ๐ผ๐๐๐ถ๐ป๐ด ๐ฆ๐ถ๐ด๐ป๐ ๐ผ๐ณ ๐๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น ๐๐ฒ๐ฎ๐น๐๐ต ๐ผ๐ฟ ๐ฆ๐ต๐ฎ๐ฑ๐ ๐ฃ๐ฟ๐ฎ๐ฐ๐๐ถ๐ฐ๐ฒ๐ ๐ต๏ธโ๏ธAs investors, it's crucial to assess a company's financial statements to make informed decisions. Today, let's explore some simple steps you can follow to evaluate financial statements and identify signs of financial health or potential red flags! ๐ผ1๏ธโฃ Check the Balance Sheet:The balance sheet provides insights into a company's financial position at a specific point in time. Focus on these aspects:โ Liquidity: Examine the company's current assets, such as cash and receivables, compared to its current liabilities. A healthy liquidity position indicates the ability to meet short-term obligations.โ Debt Levels: Assess the company's long-term debt and compare it to its equity or assets. Excessive debt could lead to financial instability or interest payment issues. Debt-to-Equity ratio-not more than 30%or 1.5-22๏ธโฃ Analyze the Income Statement:The income statement reveals a company's revenue, expenses, and profitability. Look for the following indicators:โ Revenue Trends: Evaluate the company's revenue growth over multiple periods. Consistent or increasing revenue may signify a healthy business.โ Profit Margins: Assess the company's gross profit margin and net profit margin. Higher margins indicate efficient operations and profitability.3๏ธโฃ Review the Cash Flow Statement:The cash flow statement reflects a company's cash inflows and outflows. Pay attention to:โ Operating Cash Flow: Analyze the company's ability to generate cash from its core operations. Positive and growing operating cash flow is a positive sign.โ Investing and Financing Activities: Examine cash flows related to investments and financing. Evaluate whether the company is effectively managing its capital expenditures and debt.4๏ธโฃ Study Notes to the Financial Statements:Read the footnotes accompanying the financial statements. These provide additional context and disclosure about accounting policies, significant events, or potential risks. Pay attention to any unusual or concerning information.5๏ธโฃ Seek Independent Analysis:Consider accessing independent research reports or analyst opinions to gain a broader perspective on the company.Most important Financial ratios for investors to validate a companyโs valuation.๐ Remember, financial statement analysis requires careful consideration and ongoing learning. By following these steps, you can begin to uncover insights into a company's financial health or spot potential red flags.๐ฃ Share your thoughts or additional tips for evaluating financial statements in the comments below. Let's empower each other to make informed investment decisions! ๐ฌ Equivaluesearch #FinancialStatements #InvestmentDecisions #FinancialHealth #RedFlags #InvestingTips#financialanalysis #valuation #valueinvesting #trading
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CA Prajwal Gavhane
|| Chartered Accountant || B.com ll
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๐ฝCurrent and Non-Current Assets and Liabilities As Per Ind As-1.๐ขUnder Ind AS 1, "Presentation of Financial Statements," assets and liabilities are classified into current and non-current categories on the balance sheet (statement of financial position) based on the entity's operating cycle and other relevant factors. The distinction between current and non-current items is essential as it provides insights into an entity's liquidity and financial stability.๐ธCurrent Assets:-Current assets are those that are expected to be realized, consumed, or sold within the entity's normal operating cycle (typically one year) or held primarily for trading purposes They are presented in the order of liquidity. Common examples of current assets include:1. Cash and Cash Equivalents2. Short-Term Investments3. Trade Receivables4. Inventories5. Prepaid Expenses6. Other Short-Term Receivables7. Marketable Securities๐ธNon-Current Assets:-Non-current assets, also known as long-term assets or fixed assets, are those that are not expected to be realized or converted into cash within the entity's normal operating cycle. They are intended for use over an extended period. Examples of non-current assets include:1. Property, Plant, and Equipment2. Intangible Assets3. Investments in Associates and Subsidiaries4. Long-Term Investments5. Deferred Tax Assets6. Long-Term Receivables7. Goodwill๐ธCurrent Liabilities:-Current liabilities are obligations that are expected to be settled within the entity's normal operating cycle or within one year from the balance sheet date, whichever is longer. Common examples of current liabilities include:1. Trade Payables (Accounts Payable)2. Short-Term Borrowings3. Current Portion of Long-Term Debt4. Accrued Liabilities5. Unearned Revenue (Deferred Revenue)6. Short-Term Provisions๐ธNon-Current Liabilities:- Non-current liabilities are obligations that are not due for settlement within the entity's normal operating cycle or within one year from the balance sheet date. They represent obligations that extend beyond the short term. Examples of non-current liabilities include:1. Long-Term Borrowings2. Long-Term Provisions3. Deferred Tax Liabilities4. Lease Liabilities (if not classified as short-term)5. Bonds Payable6. Pension LiabilitiesIt's important to note that the classification of assets and liabilities as current or non-current is based on management's assessment of the entity's operating cycle and other relevant factors at the balance sheet date. Additionally, there might be cases where an entity has operating cycles that are longer than a year, and in such cases, the classification would be based on the longer cycle.๐ธUpcoming new Ind as 3๐ธ
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Anders Liu-Lindberg
Anders Liu-Lindberg is an Influencer
Leading advisor to senior Finance and FP&A leaders on how to succeed with business partnering
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๐๐๐๐ง๐๐ ๐๐. ๐๐๐: ๐๐ฒ๐ฟ๐ฒ'๐ ๐๐ต๐ฎ๐ ๐๐๐ข๐ ๐ป๐ฒ๐ฒ๐ฑ ๐๐ผ ๐ธ๐ป๐ผ๐...EBITDA = Earnings Before Interest Taxes Depreciation & AmortizationFCF = Free Cash Flow๐๐๐๐๐๐ is a measure of a company's operating performance and profitability before considering non-operating expenses such as interest, taxes, depreciation, and amortization. It is calculated by adding back these expenses to the net income.๐๐๐ represents the cash a company generates from its operations after deducting capital expenditures (CAPEX). It measures the amount of cash available to the company for reinvestment, debt reduction, dividends, or other uses.๐๐ฒ๐ป๐ฒ๐ณ๐ถ๐๐ ๐ผ๐ณ ๐๐๐๐ง๐๐1. ๐ฆ๐ถ๐บ๐ฝ๐น๐ถ๐ฐ๐ถ๐๐: EBITDA is a straightforward metric that provides a quick snapshot of performance.2. ๐๐ผ๐บ๐ฝ๐ฎ๐ฟ๐ฎ๐ฏ๐ถ๐น๐ถ๐๐: EBITDA allows for easier comparison of the operating performance of different companies.3. ๐๐ผ๐ฐ๐๐ ๐ผ๐ป ๐ฐ๐ฎ๐๐ต ๐ด๐ฒ๐ป๐ฒ๐ฟ๐ฎ๐๐ถ๐ผ๐ป: EBITDA is often used to assess a company's ability to generate cash from its core operations.๐๐ฟ๐ฎ๐๐ฏ๐ฎ๐ฐ๐ธ๐ ๐ผ๐ณ ๐๐๐๐ง๐๐1. ๐๐ด๐ป๐ผ๐ฟ๐ฒ๐ ๐ป๐ผ๐ป-๐ผ๐ฝ๐ฒ๐ฟ๐ฎ๐๐ถ๐ป๐ด ๐ฒ๐ ๐ฝ๐ฒ๐ป๐๐ฒ๐: EBITDA does not account for important expenses such as interest, taxes, depreciation, and amortization.2. ๐๐ฎ๐ฐ๐ธ ๐ผ๐ณ ๐ฐ๐ฎ๐๐ต ๐ณ๐น๐ผ๐ ๐ถ๐ป๐ณ๐ผ๐ฟ๐บ๐ฎ๐๐ถ๐ผ๐ป: EBITDA doesn't provide insight into a company's actual cash flows.3. ๐ฆ๐๐๐ฐ๐ฒ๐ฝ๐๐ถ๐ฏ๐น๐ฒ ๐๐ผ ๐บ๐ฎ๐ป๐ถ๐ฝ๐๐น๐ฎ๐๐ถ๐ผ๐ป: EBITDA can be manipulated by adjusting accounting practices, making it less reliable.๐๐ฒ๐ป๐ฒ๐ณ๐ถ๐๐ ๐ผ๐ณ ๐๐๐1. ๐๐ฎ๐๐ต ๐ณ๐น๐ผ๐ ๐ณ๐ผ๐ฐ๐๐: FCF provides a direct measure of the cash generated by a company's operations.2. ๐๐ผ๐ป๐ด-๐๐ฒ๐ฟ๐บ ๐๐๐๐๐ฎ๐ถ๐ป๐ฎ๐ฏ๐ถ๐น๐ถ๐๐: FCF is a valuable indicator of a company's ability to generate sustainable cash flows over time.3. ๐๐น๐ฒ๐ ๐ถ๐ฏ๐ถ๐น๐ถ๐๐: Use FCF to evaluate various aspects of performance, like reinvestment potential and debt-paying ability. ๐๐ฟ๐ฎ๐๐ฏ๐ฎ๐ฐ๐ธ๐ ๐ผ๐ณ ๐๐๐1. ๐๐ผ๐บ๐ฝ๐น๐ฒ๐ ๐ถ๐๐: Calculating FCF can be time-consuming and prone to errors as it requires a lot of analysis.2. ๐ฉ๐ผ๐น๐ฎ๐๐ถ๐น๐ถ๐๐: FCF is subject to fluctuations due to changes in working capital requirements or capital expenditures.3. ๐๐ถ๐บ๐ถ๐๐ฒ๐ฑ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ฟ๐ฎ๐ฏ๐ถ๐น๐ถ๐๐: Comparing FCF across industries is challenging due to differences in accounting practices and capital structures.----------Which of the two KPIs is your favorite?What benefits and drawbacks would you like to highlight?#finance #cashflow #cfo #accountingandaccountants ----------๐ง Listen to our #FinanceMaster Podcast here: https://bit.ly/3NLSt73๐ฐ Sign up for our newsletter here: https://bit.ly/TrendsInFnA๐ง๐ Learn how we can help your finance team here: https://bit.ly/3prsWXH๐ค Book a discovery call with me here: https://lnkd.in/eJWAub9r
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Mahmoud Abdelazeem , MBA
"Seasoned Financial Controller | Strategic Financial Leader with 14+ Years Shaping Financial Excellence | Expert in Budgeting, Forecasting, and Controls"
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The #FCF approach provides a more comprehensive view of a company's actual #cashflow generation and value than the #EBITDA approach, which focuses on #operating #profitability and ignores some important factors. Analysts often combine both approaches to gain a more accurate understanding of a company's financial performance and prospects.
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Kumar Subrat
SAP FICO Consultant
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Understanding the Balance SheetA balance sheet is a fundamental financial statement that provides a snapshot of a company's financial position at a specific point in time. It is an essential tool for investors, creditors, and analysts to assess a company's solvency, liquidity, and overall financial health. The balance sheet follows the accounting equation, which states that assets equal liabilities plus equity. In this article, we will delve into the components of the balance sheet and explore their significance in evaluating a company's financial stability.Components of a Balance Sheet:1. Assets:-Current Assets: These are assets expected to be converted into cash or used up within one year. Examples include cash, accounts receivable, inventory, and short-term investments.-Non-current Assets: Also known as long-term assets, these are resources with a useful life of more than one year. Examples include property, plant, equipment, intangible assets, and long-term investments.2. Liabilities:-Current Liabilities: Debts and obligations due within one year, including accounts payable, short-term debt, and accrued expenses.-Non-current Liabilities: Long-term debts and obligations that extend beyond one year, such as long-term loans, bonds, and deferred tax liabilities.3. Equity:-Shareholders' Equity: This represents the residual interest in the assets of the company after deducting liabilities. It includes common stock, additional paid-in capital, retained earnings, and other comprehensive income.Analyzing the Balance Sheet:1. Liquidity Ratios:- The balance sheet helps calculate key liquidity ratios like the current ratio (current assets/current liabilities) and the quick ratio (quick assets/current liabilities). These ratios assess a company's ability to meet short-term obligations.2. Debt Ratios:- Examining the proportion of debt to equity (debt-to-equity ratio) or total assets (debt ratio) provides insights into a company's leverage and financial risk.3. Asset Turnover:- The balance sheet aids in calculating asset turnover ratios, which measure how efficiently a company utilizes its assets to generate revenue.4. Book Value:- Shareholders' equity on the balance sheet helps determine the book value per share, serving as a benchmark for evaluating a stock's intrinsic value.5. Financial Health Assessment:- A strong balance sheet with healthy levels of assets relative to liabilities signifies financial stability and resilience during economic downturns.#accounting #balancesheet #accountant #accountingtips #accountingservices
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Pranshu Chhabra
Finance| PGDM from NMIMS| Financial Analysis| Seeking opportunities๐
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Warren Buffettโs Financial Statement Guidelines:INCOME STATEMENT:Gross MarginFormula: Gross Profit / RevenueRule: 40% or higherLogic: Indicates the company isn't competing on price.SG&A MarginFormula: SG&A Expense / Gross ProfitRule: 30% or lowerLogic: Companies with strong positions need less overhead spending.R&D MarginFormula: R&D Expense / Gross ProfitRule: 30% or lowerLogic: Research costs may not always benefit shareholders.Depreciation MarginFormula: Depreciation / Gross ProfitRule: 10% or lowerLogic: Avoids companies heavily reliant on depreciating assets.Interest Expense MarginFormula: Interest Expense / Operating IncomeRule: 15% or lowerLogic: Strong businesses don't rely heavily on debt.Income Tax ExpensesFormula: Taxes Paid / Pre-Tax IncomeRule: Current Corporate Tax RateLogic: Profits warrant full tax payments.Net Margin (Profit Margin)Formula: Net Income / SalesRule: 20% or higherLogic: Successful firms convert over 20% of revenue to profit.Earnings Per Share GrowthFormula: Year 2 EPS / Year 1 EPSRule: Positive & GrowingLogic: Strong companies increase profits yearly.BALANCE SHEET:9. Cash & DebtFormula: Cash > DebtRule: More cash than debtLogic: Flourishing firms avoid excessive debt.Cash & DebtFormula: Cash > DebtRule: More cash than debtLogic: Prosperous firms generate cash without heavy debt.Adjusted Debt to EquityFormula: Total Liabilities / Shareholder Equity + Treasury StockRule : < 0.80Logic: Thriving companies rely on equity for funding.Preferred StockRule: NoneLogic: Strong companies don't require preferred stock for funding.Retained EarningsFormula: Year 1 / Year 2Rule: Consistent growthLogic: Successful firms see growing retained earnings annually.Treasury StockRule: ExistsLogic: Flourishing companies buy back their stock.CASH FLOW STATEMENT:15. Capex Margin- Formula: Capex / Net Income- Rule: <25%- Logic: Prosperous companies require less equipment for profit generation.Important Note: There are exceptions to these guidelines.
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Abdelrahman Baioumy
Accounting Manager at Raya Foods
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I agreed that EBITDA is an imperfect measurement of a company's financial health. However, I believe that there is no such thing as a perfect financial indicator. EBITDA can be a useful starting point for valuation, but it should be used in conjunction with other indicators such as CAPEX, equity, and debt.
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