EV/EBITDA has many flaws that can make it misleading, such as ignoring real costs and liabilities and not accounting for differences in business models.
David Trainer, CEO of New Constructs, will present “Pitfalls of Price-to-Book Ratios, ROE, and EV/EBITDA” on the Interactive Brokers Education platform.
From yesterday's research, our analysts parsed 80 10-K filings and collected 8,940 data points. In total, they made 1,868 forensic accounting adjustments with a dollar value of $1.3 trillion.
In reality, EV/EBITDA can actually be significantly worse than P/E or P/B ratios because EBITDA ignores certain real costs of doing business like taxes, depreciation, and amortization. Put simply, EBITDA is even farther removed from the real cash flows of the business than EPS or net income.