KEY POINTS:
Nothing scares off non-business readers like EBITDA. The ugly acronym is normally banned from the first paragraph of Business Herald stories.
Those of you still reading may already know that EBITDA is a good way of indicating how much money a company made from actually selling stuff.
But
it is also an example of the kind of jargon that makes reading company results so daunting to many people.
EBITDA is an earnings figure which excludes the external costs of doing business (interest, tax, depreciation and amortisation) that all influence the bottom line profit but which can mask the company's operating performance.
So it is an entirely valid number to ponder when it comes to an annual result.
But when a business journalist sees EBITDA reported in the first paragraph of a company's annual results announcement they tend to get excited. It's usually a sign there is a nasty net profit figure buried in the text.
There are other examples of numbers that companies would often prefer to see highlighted rather than the final profit. For a fledgling tech company that has already told investors it won't be profitable for several years, the bottom line isn't so important. Investors want to see revenue growing. Although they'll still have an eye on the size of the loss.
An exporter might highlight constant currency earnings.
In other words it will talk about the profits it might have made if the currency hadn't moved in the wrong direction during the year.
But in the end, for all companies, results must eventually come back to the bottom line.
Shareholders are in the game for dividends.
While other numbers might be more descriptive, and they might paint a more accurate picture of a company's progress, they don't pay the piper.
In good times companies will always trumpet a strong net profit. In not so good times most sensible companies will warn the market that a drop in profit is coming.
When results day comes there are few companies that seriously try and bury the profit figure.
The market is too smart for that.
But that doesn't mean they are averse to a bit of spin and polish in the way they present the figures.
As you'd expect, the spin seems to get heavier as the results get worse.
So with the effects of the slowdown starting to flow through to corporate profits, now is a good time to take a hard look at the way reporting is done and how the results should be read.
We should always take our EBITDA with a grain of salt and we should also watch out for "new improved" versions of existing jargon.
EBITDAF anyone? The latest incarnation to emerge this season excludes "financial instruments" - basically the effects of the new International Financial Reporting Standards regime.
But the ever expanding acronym is not a trend to be encouraged. How about a Weighted-average Earnings Before Interest, Tax, Depreciation, Amortisation, Financial instruments and Technology costs? Perhaps that might be a WEBITDAFT.
Liam Dann is the Herald's business editor
