In the Q-Bank there is a question: which of the following multiples ist most severely damaged by international accounting differences. and there is 1. P/CFO 2. EV/EBITDA 3. P/FCFE The solution is that EV/EBITDA is most seriously affected because it is most closely tied to accounting conventions. IN MY OPINION THIS ANSWER IS WRONG. BECAUSE EBITDA is robus because deprciation and amoritzation are not substracted so its robust to differences. and additional to that it is also robust to capital structure… what do you thinkg??
OF ALL THOSE CHOICES NUMBER 2 IS BEST ANSWER THOUGH,CASH FLOW IS LESS SUBJECT TO ACCOUNTING MANIPULATIONS
EBITDA is more fungible than cash flow (according to the curriculum). In terms of fungibility, I think it goes in this order (least to most): Cash flow EBITDA Net Income
sorry fungible?? what does that mean??
Can someone please clarify this - why is EBITDA seriously affected by international accounting differences?
EBITDA is not an appropriate proxy for cash flow because it does not consider the changes in bs operating accounts. Accrual accounting is subject to manipulation as well. This is not a good measure for cash flow domestically, I would imagine the same assumptions will be carried for international.
^ Correct. Manipulation is even more likely with international firms, amplifying that effect.
swaptiongamma Wrote: ------------------------------------------------------- > Can someone please clarify this - why is EBITDA > seriously affected by international accounting > differences? This could be because of differences in revenue and expense recognition methods. (only reason, I could think of) Because EBITDA is pre-tax, pre-depreciation, pre-levered number.