This webinar explores the ins and outs of financial language and how you can navigate the seeming labyrinth of a language that can sound foreign and in some ways counterintuitive. This webinar teaches the correct use of EBIT, EBITDA and EBITDAR while also dealing with concepts like Cap Rate vs. Capital Cost. This webinar also sheds light on issues with ROI and Payback among other valuation tools and explains what a Cash Conversion Cycle looks like for your business. To view the accompanying webinar, go to:https://www.financialpoise.com/financial-poise-webinars/ebitda-and-other-scary-words-2021/

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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

3. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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4. Meet the Faculty
MODERATOR:
Jonathan Friedland - Sugar, Felsenthal, Grais & Helsinger LLP
PANELISTS:
Shante George - Baker Tilly
Ken Yager - Newpoint Advisors Corporation
Richard Claywell - J. Richard Claywell CPA
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5. About This Webinar
EBITDA and Other Scary Words
This webinar explores the ins and outs of financial language and how you can
navigate the seeming labyrinth of a language that can sound foreign and in some
ways counterintuitive. This webinar teaches the correct use of EBIT, EBITDA and
EBITDAR while also dealing with concepts like Cap Rate vs. Capital Cost. This
webinar also sheds light on issues with ROI and Payback among other valuation
tools and explains what a Cash Conversion Cycle looks like for your business.
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6. About This Series - MBA Boot Camp 2021
“If you don’t know your numbers, you don’t know your business.” This is a common refrain
that is equally applicable to attorneys and other consultants who work with businesses. This
webinar series is designed for you if you are a startup founder, business owner, executive,
investor, attorney or consultant who, though not a finance or accounting professional, finds
herself needing to understand finance and accounting. It won’t make you an expert but it will
give you the tools you need to speak with experts in order to get more out of them and it will
provide a solid foundation on which you can build. Packed with illustrative examples, helpful
anecdotes and real-world case studies, this series teaches you some of the key take things
you need to understand about finance and accounting.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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7. Episodes in this Series
#1: EBITDA and Other Scary Words
Premiere date: 1/21/21
#2: How to Read a Balance Sheet – And Why You Care!
Premiere date: 2/18/21
#3: The KPI- Cash Flow Modeling and Projections
Premiere date: 3/18/21
#4: Where Did All My Profits Go? Mastering the Concept of Working Capital
Premiere date: 4/22/21
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8. Episode #1
EBITDA and Other Scary Words
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9. Financial Metrics
 Financial / Accounting Ratios
 Inputs for Financial / Accounting Ratios
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10. Financial/Accounting Ratio
 A relative magnitude of two selected numerical values taken from an
enterprise's financial statements
 Used to compare the strengths and weaknesses between/among companies
 By Whom?
 By managers within a company
 By current and potential shareholders (owners) of a company
 By company’s creditors
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11. Inputs for Financial Accounting Ratio
 Values used in calculating financial ratios are derived from:
 Balance sheet
 Income statement
 Statement of cash flows
 Statement of changes in equity
 Data contained in these statements is based on the accounting method and
accounting standards used
 These statements provide certain key metrics
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12. Balance Sheet Sample
Source: https://basicaccountinghelp.com/balance-sheet-example.html
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13. Financial Statement Sample
Source: https://corporatefinanceinstitute.com/resources/knowledge/accounting/gross-profit/
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14. A Brief Note on GAAP (Generally Accepted
Accounting Principles)
 Collection of commonly accepted accounting rules and standards for financial
reporting
 Includes definitions of concepts and principles, as well as industry-specific rules
 Designed to ensure that financial reporting is transparent and consistent from
one organization to another
 But not all terms/concepts are defined in GAAP, e.g., EBITDA
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15. Key Metrics
 What is key varies by:
 Point in lifecycle
 Industry
 Financial strength
 Purpose in considering
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16. Examples of Some Key Metrics
 Gross Profit Margin
 Compares cost of goods or services to income derived from those costs
 Tool to determine productivity when compared against others in same industry
 Current Ratio
 Measures liquidity
 Total Current Assets / Total Current Liabilities
 Working Capital
 Total Current Assets - Total Current Liabilities
 Positive working capital means company can pay off its short-term liabilities.
Negative working capital means company currently is unable to meet its short-
term liabilities with its current assets.
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17. Examples of Some Key Metrics
 Debt/Equity Ratio
 Measures the extent of leverage in a company
 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
 Essentially, this is the net operating income of a company
 Can be used to analyze and compare profitability between companies
because it eliminates effects of financing and accounting decisions
 Essentially, a measure of cash flow from operations, which is available to
service debt and make capital expenditures
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18. Some Key Metrics from an Investor’s Perspective
 Liquidity
 Earnings Growth and Growth of Net Income
 Return on Assets
 Operating Cash Flow
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19. The Investor’s Perspective – Liquid (Balance Sheet)
 Can the company pay everything it needs to pay in the next year?
 The current ratio compares current assets (assets that can be turned into cash in
the next year) with current liabilities (obligations that have to be paid in the next
year)
 Rule of thumb - a 2:1 ratio of liquidity to debt is good
 A large, well-run company may have lower ratio where its cash control is good
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20. The Investor’s Perspective – Earning Growth of Net
Income (Income Statement)
 Is company growing?
 Look across top and bottom lines of income statement the top line and bottom
line should be growing in a fairly parallel manner
 To the extent a company creates operating leverage (for example, through
economies of scale), bottom line can grow at a faster pace than top line
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21. The Investor’s Perspective (Return on Assets)
 Return on assets, return on equity, and return on capital = measures of
compared to amount of money being used to get those earnings
 Return on assets is an indicator of how profitable a company is relative to its
total assets
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22. The Investor’s Perspective – Operating Cash Flow
(Statement of Cash Flows)
 How is the company generating cash?
 [Operating cash flow - $ used to pay for capital expenses] = owner’s cash flow
or free cash
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23. Some Key Metrics for Startups
 Customer Acquisition Cost (CAC) & Lifetime Value of Customer (LTV)
 Churn Rate (number of clients who drop its services in a given period)
 Revenue Run Rate (extrapolation of annualized revenue based on current income
levels)
 Cash Flow/Burn Rate (speed with which a business uses up its cash reserves to pay for
overhead)
 Fixed vs. Break-even Costs
 Analysis
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24. Some Key Metrics for Lenders
Source: https://corporatefinanceinstitute.com/resources/knowledge/finance/assessing-debt-capacity/
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25. Some Key Metrics for Acquirers
 Growth: Companies with much higher or much lower growth (measured by their three-
year compound annual growth rate in sales) than the average are the most likely to
become acquisition targets
 Profitability: Private companies with much higher or much lower profitability (measured
by their ratio of EBITDA to sales) than the average are the most likely to become
acquisition targets
Source: https://www.forbes.com/sites/mattporzio/2016/10/03/6-key-financial-indicators-of-
attractive-acquisition-targets/#a46b5ce1ab35
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26. Some Key Metrics for Acquirers
 Leverage: Private companies with much higher leverage (measured by their ratio of debt
to EBITDA) than the average are the most likely to become acquisition targets. Public
companies with much lower leverage than the average are the most likely to become
acquisition targets.
 Size: Private companies that are much larger or smaller (measured by total sales) than
the average are the most likely to become acquisition targets. Public companies that are
much smaller than the average are more likely to become acquisition targets.
Source: https://www.forbes.com/sites/mattporzio/2016/10/03/6-key-financial-indicators-of-
attractive-acquisition-targets/#a46b5ce1ab35
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27. Some Key Metrics for Acquirers
 Liquidity: Target companies have lower levels of liquidity (measured their ratio of current
assets to current liabilities) than non-target companies
 Valuation: Public companies with lower valuation multiples (measured by their ratio of
enterprise value to EBITDA) than the average are the most likely to become acquisition
targets
Source: https://www.forbes.com/sites/mattporzio/2016/10/03/6-key-financial-indicators-of-
attractive-acquisition-targets/#a46b5ce1ab35
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28. EBITDA – Defining and Demystifying
 Earnings Before Interest Taxes Depreciation & Amortization
 Used to measure a company's financial strength by approximating cash
flows, without factoring in tax conditions or accounting decisions
 Focuses on measuring financial strength by removing expenses that are
not part of a company's core functions
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29. EBITDA – History and Use
 Popularized in the 80s in leveraged buyouts ("LBOs"), when acquirers
assessed profitability of distressed businesses to determine whether company
acquired could pay down debts quickly after restructuring
 EBITDA can be used by management to compare company performance
against similar companies that have different capital structures
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30. EBITDA – Breaking Down Each Component
 Earnings
 Essentially the company's Net Profit
 Often referred to as the "bottom line," Net Profit is calculated by
subtracting total expenses from total revenues
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31. EBITDA – Breaking Down Each Component
 Before Interest
 Costs incurred for financing
 Considered to be a non-operating expense on company's income
statement
 Represents interest payable for any type of financing (bonds, loans,
convertible debt, lines of credit, etc.)
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32. EBITDA – Breaking Down Each Component
 Before Taxes
 Taxes payable vary company to company, based on taxing jurisdictions,
structure of organization, etc.
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33. EBITDA – Breaking Down Each Component
 Before Depreciation
 Captures economic and functional decline in the value of a tangible asset
(such as property, plant, and equipment (“PP&E”)) over the asset's
expected life
 Multiple methods of depreciation used under US GAAP
 May be differences in how an asset's decrease in value is calculated for
financial and tax reporting
 Considered to be a non-cash expense because no cash outflow is
associated with asset's declining value (cost is purely economic)
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34. EBITDA – Breaking Down Each Component
 Before Amortization
 Representation of declining value of long-lived intangible asset over its
expected economic life
 May include intangibles such as capitalized software, or acquired
intangible assets such as trade names, customer relationships, and
technology
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35. Advantages of EBITDA
 Simplicity
 Easy metric for investors or others conducting due diligence to
understand company's ability to make money
 Comparability
 EBITDA aids comparison of multiple companies in an industry against one
another by stripping out variable factors (interest, taxes, depreciation,
amortization)
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36. Disadvantages of EBITDA
 Inaccuracy
 By not factoring in interest, taxes, etc., EBITDA may not create a full
picture of a company's ability to operate profitably
 Misuse
 EBITDA may be manipulated to make company appear more profitable
than it is
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37. Disadvantages of EBITDA
“EBITDA is one of the most deceptive and overused financial terms in business and
investment finance. In a weak attempt to create a level playing field between two
comparable companies in the same industry, EBITDA instead creates confusion by
excluding important metrics like working capital changes. EBITDA cannot be used
alone to create an accurate cash flow picture we need to move from EBITDA to
actual cash flow.”
Source:
The Business Ferret (http://thebusinessferret.com/key-financial-metrics/ebitda-to-cash-flow/)
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38. EBITDA Hypo
 Suppose you wanted to evaluate two lemonade stands. For the purposes of
illustration, we'll assume these two companies use the exact same lemonade
stands and carry the same amount of inventory, cash in the register, etc., thus
their balance sheets carry the same amount of assets
 Lemonade Stand A was funded entirely by equity; Lemonade Stand B primarily
uses debt to fund its operations
 The only difference between them is how they chose to finance these assets --
one with debt, one with equity
 Income statements for these two lemonade stands appear in the next slide
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39. EBITDA Hypo: Lemonade Stand A
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Revenue $1,000
Cost of Goods Sold $300
Interest Expense $0
Depreciation of Lemonade Stand $50
Income Before Taxes $650
Net Income (35% Tax Rate) $422.50
EBITDA $700

40. EBITDA Hypo: Lemonade Stand B
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Revenue $1,000
Cost of Goods Sold $300
Interest Expense ($1,500 at 10% Interest) $150
Depreciation of Lemonade Stand $50
Income Before Taxes $500
Net Income (35% Tax Rate) $325
EBITDA $700

41. EBITDA Hypo
 Because Lemonade Stand B uses substantially more debt ($1,500 at 10%
interest) to finance its operations, it is less profitable in terms of net income ($325
in profits versus $422.50)
 However, when compared on the basis of EBITDA, the lemonade stands are
equal, each producing $700 in EBITDA from $1,000 in sales last year
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42. Variations on a Theme –
EBIT, EBITDAR, EBITDARM
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43. EBIT
 Earnings Before Interest & Taxes
 Leaves Depreciation and Amortization as part of calculation
 May be preferable to measure actual earnings of companies with high capital
expenditures ("CAPEX" is $$$ used to acquire or maintain fixed assets like
land, buildings, and equipment)
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44. EBITDAR
 Earnings Before Interest Taxes Depreciation Amortization & Rent/Restructuring
costs
 Same calculation as EBITDA, but in addition removes rents and restructuring
costs from equation
 Useful for companies contemplating restructuring
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45. EBITDARM
 Earnings Before Interest Taxes Depreciation Amortization Rent & Management
fees
 Modifies EBITDA calculation to remove additional factors of rent and fees
associated with property management
 Frequently used when company has rent and management fees representing a
higher-than-usual percentage of operating costs (Real Estate Investment Trusts
("REITS"), hospitals, nursing facilities)
 Also used by credit ratings agencies
45

46. Enterprise Value (EV)
 EV measures a company’s total value, and looks at entire market value rather
than just equity value
 In essence: the effective cost of buying a company, or the theoretical price of a
target company
46

47. Enterprise Value (EV)
Source: https://corporatefinanceinstitute.com/resources/knowledge/valuation/what-is-enterprise-value-ev/
47

48. Enterprise Value (EV) & EBITDA – Calculating
Enterprise Multiples
 Once EV & EBITDA are known, they can be used in concert to determine an
Enterprise Multiple
 Ratio used to determine the value of a company.
 Enterprise Multiple looks at a company the way a potential acquirer would,
taking into account the company's debt
48

49. Enterprise Value (EV) & EBITDA – Calculating
Enterprise Multiples
 Uses:
 Investors/buyers can use to determine whether company is
over/undervalued
 Compare valuations of multiple companies
 Calculating offer price for company by prospective purchaser (example,
offering 4x EBITDA)
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50. About the Faculty
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51. About The Faculty
Jonathan Friedland - jfriedland@sfgh.com
Jonathan Friedland, a senior partner with Sugar Felsenthal Grais & Helsinger, LLP, views his job
simply: to make money for clients whenever possible and to protect their interests at every turn.
Licensed in four states, Jonathan’s transactional work focuses on representing private funds and
other owners of private businesses, and the businesses they own. He regularly advises on M&A
activities, structuring new ventures and restructuring old ones, and on other commercial
relationships. Jonathan is rated AV® Preeminent™ by Martindale-Hubbell, 10/10 by AVVO, and
enjoys several other similar distinctions. Jonathan graduated from the State University of New York
at Albany, magna cum laude (in three years) and from the University of Pennsylvania Law School.
He clerked for a federal judge before entering private practice and served for several years as an
Adjunct Professor of Strategic Management at the University of Chicago’s Graduate School of
Business. Jonathan is lead author and editor of several significant treatises, several chapters in
other treatises, and scores of articles on law and business.
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52. About The Faculty
Richard Claywell - richard@biz-valuation.com
Richard is a practicing Certified Public Accountant, and holds the additional designations of Accredited in Business
Valuation, Accredited Senior Appraiser, Certified Business Appraiser, International Certified Valuation Specialist,
Certified Valuation Analyst, Certified in Merger & Acquisition Advisor, Master Analyst in Financial Forensics, Certified
in Fraud Deterrence, Accredited in Business Appraisal Review. Richard has been valuing closely held companies
since 1985. Richard’s practice is restricted to business valuation, economic damages, profit enhancement and exit
planning. Richard received his Bachelor of Science in Accounting in 1979 from the University of Houston – Clear
Lake. He then received certification as a Public Accountant in 1983. Over the years, Richard has earned additional
accreditations that relate to business valuations, economic damages and fraud. Richard has been an instructor for
the National Association of Certified Valuation Analysts for many years, has been an instructor for the Internal
Revenue Service and the International Association of Consultants Valuators and Analysts (IACVA). Richard is
currently the Chairman of the Board for the IACVA and is responsible for the business valuations materials being
taught in 55 countries. Richard has taught business valuation or economic damage courses in China, Korea, Taiwan.
Richard has performed over 1,500 business valuations since 1985. Richard has testified in Texas County Court,
Texas State Court, Bankruptcy Court and Texas State Courts. Richard has given testimony in economic damages
(lost profits), shareholder disputes, personal injury, wrongful termination and divorce.
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53. About The Faculty
Shanté George - shante.george@bakertilly.com
Shanté George joined Baker Tilly in 2016 and is a principal in the firm’s forensic, litigation and
valuation services practice. She has extensive experience advising companies, unsecured
creditors, lenders, bankruptcy trustees and examiners in both bankruptcy and out-of-court
proceedings. Shanté leads engagements in the development and implementation of
engagement strategy; challenging and developing business plans and comprehensive, long-
term multi-divisional financial models; analyzing and preparing cash flow projections;
conducting claims analyses; and assessing feasibility issues.
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54. About The Faculty
Ken Yager – KYager@newpointadvisors.us
Ken has 25 years of executive leadership experience in stakeholder communication. Mr.
Yager regularly takes on profit and loss and risk-management responsibility for cash-
constrained companies in growth, leveraged-buyout and turnaround situations. He also has
successfully worked on implementing dozens of initiatives involving, operations and project
management, team building, marketing, and sales and joint-venture management. He is a
fierce advocate for capital preservation and saving jobs. Ken has worked with clients in a
variety of industries in over 100 engagements. Prior to Newpoint Advisors, Mr. Yager was a
Principal at MorrisAnderson, a national turnaround management firm focused on assisting
companies deal with severe liquidity issues and insolvency.
To read more, go to https://www.financialpoise.com/webinar-faculty/ken-yager/
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55. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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56. About Financial Poise
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