Is the following statement correct?
EV/EBITDA is less likely to be impacted by differences in international accounting standards than P/E or Price to Free Cash Flow to Equity (P/FCFE).
The answer is this is wrong. But since EBITDA only consider Sales, COGS and SG&A expense, while net income from P/E and P/FCFE consider all the elements in income statement, EV/EBITDA is less likely to be impacted by differences in international accounting standards.
The answer is wrong. Don’t know what the issue is?
you sure?
surely the higher up the income statement you go, the less likelihood there is of manipulation?
Bump! Came across this question in TT Equity - Pacific Wind today, can anyone please explain?
Perhaps as the numerator EV is based on market values, which in turn are based on accounting values, the measure is just as susceptible to manipulation?
¯_(ツ)_/¯
P/FCFE is less likely to be impacted by difference in accounting standards compared to EV/EBITDA
EBITDA can still be manipulated via revenue recognition policies or choices for accounting COGS.
the statement is correct when comparing it with P/E but not with P/FCFE
FCFE would have the same revenue/COGS manipulation risks as EBITDA?
I don’t think so:
aggressive revenue recognition -> high account receivables -> reflected in the change of working capital -> netted by FCFE
conservative revenue recognition -> high unearned revenue/high provisions for warranty/customer returns -> reflected in the change of working capital -> netted by FCFE
overestimated cogs -> low remaining inventory value -> reflected in change of working capital -> netted by FCFE underestimated cogs -> high remaining inventory value -> reflected in change of working capital -> netted by FCFE
the same goes for non-operating expenses such as depreciation or capitalizing expenses and leases
non-cash tools used by management to manipulate earnings can rarely be used to manipulate FCFs
touche thanks for deepening my understanding of FRA Edbert