Rewriting EBITDA.

This is a critique of how EBITDA strips away the parts of business that actually make the story real.

I have always had a soft spot for the absurd things we create to make ourselves feel better. New Year’s resolutions. Inspirational mugs that tell us if you can be anything be kind. The little clichés we keep around because they take the edge off a complicated world. EBITDA belongs in that family. It is not evil. It is not a scam. It is simply a very hopeful little number trying to make a complicated world feel tidy.

A Short History Of How EBITDA Slipped Into Power

EBITDA did not fall from the sky. It walked in the front door in the 1970s, wearing a smile and promising not to cause trouble. The man who brought it was John Malone, the cable king who built Tele Communications Inc. at a time when cable systems were expensive to build and even more expensive to maintain. His income statements looked like a battlefield. Heavy depreciation. Enormous capital spending. Lots of debt. Not exactly the stuff that inspires investor confidence.

So Malone reframed the picture. He wanted to show lenders and investors that even though the bottom line looked worn out, the business was generating strong cash from operations. EBITDA let him do that. It stripped out the messy parts and revealed the engine underneath. It was honest enough for its purpose. And it worked. Investors could finally see potential instead of panic.

Then came the 1980s. Leveraged buyouts became the sport of the decade. Firms like KKR and Forstmann Little needed a clean way to show whether a company could service the mountains of debt they were piling onto it. EBITDA became their flashlight. It showed the ability to pay interest without being dragged down by non cash charges. It was simple. It was consistent. It became the north star of debt financed deals.

By the 1990s and 2000s, tech companies embraced it because it made early stage businesses look less alarming. Then non GAAP reporting took off and every company began adjusting and re adjusting their EBITDA to tell the most flattering version of their story. It was no longer just a measure. It became a marketing tool. A way to say look how great we are if we ignore the parts you do not want to think about.

That is how EBITDA became the celebrity metric of modern business. It started as a practical tool for one man trying to explain the potential under a heavy load of expenses. Then private equity adopted it. Then public companies adopted it. Then investors began expecting it. Before long, it was no longer a choice. It was a ritual. A required slide. A number everyone treated as the whole truth even though it never was.

How EBITDA Is Actually Useful

EBITDA does serve one purpose. It answers a very specific question. How well does the core engine of the business run before we consider everything orbiting around it. It strips away the noise. It shows you the heartbeat without the hospital bill.

If you want to compare two companies in the same industry and see which one runs more efficiently at the day to day level, EBITDA helps. It takes out their different choices about debt, taxes, and past spending. It lets you look at the work itself. The business model. The part that is supposed to produce value.

If EBITDA is negative, the engine is not strong enough. If it is positive and growing, the engine is doing its job. That is all EBITDA really tells you. It is a clean snapshot. A blueprint. Clear and focused. But it is not the house you actually have to live in.

Why It Still Holds So Much Power

People love a shortcut. A tidy number. Something that whispers you are doing fine without asking you to crawl under the house with a flashlight. EBITDA is the comfort food of finance. Mac and cheese for investors.

It also survives because it is easy to compare. Two companies from different worlds can stand next to each other and pretend they are speaking the same language. Investors love that kind of simplicity. Bankers love it. Founders love it. It keeps early conversations smooth.

Most of all, EBITDA endures because everyone agrees to pretend it matters more than it does. Once something becomes a ritual, no one wants to be the first to abandon it. Entire presentations glow with EBITDA slides presented as if they carry ancient wisdom. No one wants to be the person who shrugs and says this only tells us part of the story.

So EBITDA holds power because it is familiar. It is comforting. And it gives everyone the gentle illusion of control in a world that refuses to be controlled.

If EBITDA Ever Wanted To Tell The Whole Story

Here is what it would need to include before it could claim real authority.

Interest. Because borrowed money is still borrowed.

Taxes. Because the IRS always finds you.

Depreciation. Because everything ages even when we wish it would not.

Amortization. Because yesterday still sends a bill.

Profitability. Because revenue without real earnings is performance art.

Capital expenditures. Because equipment does not fall from the sky.

Maintenance. Because things break at the least convenient time.

Risk. Because surprises never disappear.

If we added all of this in, we would need a new acronym that matches the reality. A full accounting of the whole business rather than the flattering slice.

EBITDAPCMR

Earnings before interest taxes depreciation amortization profitability capital expenditures maintenance and risk

The initials are long because the truth is complicated. And the reason most businesses do not make it is because the real world is never as simple as an EBITDA statement.