EP 3 : EBITDA Fantasy

EBITDA is one of the most widely used financial metrics — and one of the most misunderstood.
It’s intended to strip out noise and show “true operating performance.”

But in practice, EBITDA often creates a version of the business that exists only in presentations and investor decks.

EBITDA removes:
• interest
• taxes
• depreciation
• amortization

And Adjusted EBITDA removes even more:
• “one-time” legal fees
• “non-recurring” restructuring costs
• “strategic” initiatives
• “normalizing adjustments” for people who no longer work there
• stock compensation
• technology write-offs
• losses from discontinued lines

With enough adjustments, almost any business can appear stable.
Profitable.
Predictable.

But EBITDA ignores the pressures that determine whether the company can actually survive:
• cash collection problems
• vendor strain
• timing delays
• renewal risk
• hiring gaps
• escalating liabilities
• inventory or backlog issues
• capital spending that cannot be deferred

It tells a simplified story — one where operations run smoothly, execution is flawless, and cash timing doesn’t matter.

Reality rarely agrees.

The gap becomes dangerous when decisions are made based on a “cleaned-up” metric rather than the operational truth.

Companies manage to an EBITDA target, while liquidity, capacity, and timing constraints quietly tighten around them.

Metrics don’t keep companies solvent.

Cash flow discipline does.

Operational honesty does.

Understanding timing and execution risk does.

EBITDA has value — but only when grounded in the world the business actually operates in, not the one the adjustments wish it were.