Many market participants and business appraisers refer to EBITDA as one measure of gross cash flow. Some think about the value of a businesses in terms of rule of thumb multiples of EBITDA. However, Warren Buffet warns against “trumpeting EBITDA” as a “pernicious practice.” In light of both sides, we consider whether it can valuable to look at EBITDA in the context of two different public companies: Exxon and Apple.
With the second quarter drawing to a close, private equity managers can look forward to a fresh round of portfolio valuation marks. We recently pulled some historical gains and losses reported by publicly-traded BDCs to help provide some context as we look to the upcoming valuation marks.
As the current bull market has extended into its sixth year and the S&P 500 continues to reach record highs, have goodwill impairment charges declined? Conventional wisdom would suggest that as markets rise and valuation multiples expand, companies’ goodwill values might be protected. Furthermore, various regulatory entities have recently proposed relaxing standards for goodwill impairment as if higher equity markets have rendered impairment a thing of the past. While this hypothesis might hold true for large cap stocks, this may not be the case for small cap stocks.
The CFA Institute recently released a report about investor apprehensions concerning separate accounting standards for private companies. The report reflects the results of a survey of investment professionals in the CFA Institute. The separate accounting standards include differing accounting rules for SMEs (small or medium sized entities) under IFRS and for private companies under GAAP (as advanced by the Private Company Council). On balance, while investors seem to think the initiative will reduce companies’ compliance costs, they believe the benefits are unlikely to outweigh the costs.
I once heard a friend in the investment management business quip in 2006 that value stocks were no value and growth stocks were not growing. Depending upon the sector, the thought may apply today; I think it applies to most banks. Commercial banking usually is a slow- to moderate-growth proposition — if not a boring one except when industrywide credit issues develop. However, what many investors crave is growth, not value. After attending the Gulf South Bank Conference, a number of things caught my attention as it relates to growth and M&A accounting.
