INTRODUCTION: This page provides information on financial and business topics and other areas of interest to the investors.

What is EBITDA or GAAP?

EBITDA, is an indicator of a company's financial performamce calculated as: Revenue - Expenses (excluding interest, tax, depreciation and amortization)

EBITDA can be used to compare and analyze the profitability between companies and industries because it eliminates the effects of financing and accounting decisions. A lot of people believe that EBITDA represents cash earnings. The use of EDBITDA to evaluate profitability is good, but not cash flow.

EBITDA first come to promience through leveraged-buyouts in the 1980s where it was used to indicate the ability of a company to service debt. Over time, it became popular in industries with expensive assets that had to be written down over long periods of time.

The current trends is, EBITDA is commonly quoted by many industries, even when its not needed. The technology industry as a tendancy to do this. As a result, experienced investors believes that EBITDA is an accounting gimmick used to dress up corporate earnings.

GAAP (Generally Accepted Accounting Principles) is the common set of accounting principles, standards and procedures. GAAP is a combination of authoritative standards set by the standard-setting bodies as well as accepted ways of doing accounting.

These are the rules that companies are "expected" to follow. If a financial statement is not prepared with GAAP principles then be very, very wary.

From Keystone Financial Publishing Corp, www.keystocks.com