The Worthiness Of Ebitda

As the financial index which is Non-GAAP and with creativity, EBITDA has been in the"spotlight"ever since it was widely used in 1980s. While researches on EBITDA overseas are significant and thorough, which have been covering calculation, forecasting ability, value relativity, valuation, management function, etc, similar and relative studies in China are limited. This paper aims to explore the significances of EBITDA and to find out its value for Chinese enterprises, investors and the government supervising bodies. By analyzing the content and extent of EBITDA with logic and based on the data verification and case study on its application, this paper has clarified the concept, nature, property, function, calculation methodology, advantages and disadvantages and the findings are listed as follows:(1)As for the external investors and government supervising bodies, EBITDA could be used for forecasting the cash flow in operations; EBITDA has bi-property of sustainable sufficient and cash flow forecasting and the information content it has is unique, which differentiate itself from other financial indexes; EBITDA is closely related with values.(2)As for enterprise management, the significance of EBITDA lies in its value relativity which conforms to the intrinsic orientation of VBM (Value-based Management). In addition, its bi-property of sustainable sufficient and cash flow forecasting provides the possibility of assessing enterprises'operation performances with complete and comprehensive financial data. That is why EBITDA could be used as a KPI under the framework of VBM to assess operation performances. As long as it is properly used, EBITDA could become an effective instrument which helps enterprises maximize their values.