We don’t think so. Following criticisms on German manufacturing company Schenk Process’s usage of this figure, it appears that EBITDAC is not an appropriate measure to quantify a business’s financial gains or losses.
What EBITDAC is?
You know EBITDA – earnings before interest, tax, depreciation, and amortization. EBITDAC adds the C for Coronavirus, implying that a company should have earned such an amount if not for the virus.
Appropriately used, EBITDA should only give investors a clear picture of a company’s abilities to create a profit even with unavoidable costs. However, it wasn’t ever a favourite among investors and is seen as a “fictitious amount” that aims to make a company’s figures glossier and attractive for more significant buyouts. How much more EBITDAC, which seems to put under the rug the actual performance of a company amidst the Coronavirus crisis.
What started as a Twitter meme was used by the company mentioned above Schenk, as well as by American firm The Azek Company. Schenk reported a 20% increase in profits instead of the actual 16% decrease, as they factored in EBITDAC. The Azek Company, on the other hand, was able to increase its junk bonds to $325 million.
Why EBITDAC shouldn’t be used?
Put merely, EBITDAC is a false, unrealistic figure that misleads lender and companies alike. Projecting earnings to be of a certain amount to gain the trust of lenders is a disaster waiting to happen. Lenders would end up giving out money that a company will not be able to pay back even post-COVID, and borrowers would end up in a debt-ditch that’s hard and messy to get out of.
Using EBITDAC is making a promise that’s already broken even before you get a chance to fulfil it. How will companies defend that the loss is due to Coronavirus and not to other factors such as poor performance against the competition?
What Your Business Should Focus On
Last year’s stellar performance feels so ancient, as we live in the face of this pandemic. As a result, that’s precisely how we should treat it – ancient, far away, and unrealistic. Instead of trying to paint a rosier picture by using EBITDAC, it’s best to focus on working on the present and preparing for the future of your company. Even epidemiologists and medical field experts don’t risk their names and reputations in giving predictions; it’s not a time to think of what could have been.
Instead of whining and wishing, direct your company focus on survival. They say that at this point, as a business, if you are surviving, you are already winning. If you can keep all of your employees happy, healthy, and even productive at such a time, then you are setting up success in the post-COVID normal.
When the dust settles, investors and even the public will look for companies that were able to survive the pandemic through ethical strategies. It is a perfect time to use your entrepreneurial ingenuity not to bend numbers and figures, but to ideate for the new normal. The way you approach the current losses and setbacks will determine your overall success in the future, so make sure all your business moves count towards that goal.
If you want to learn more about EBITDAC, you can get in touch with Annette & Co. for FREE business advice. Better yet, you can tune in to my Podcast – Uncover Wealth Radio – where I talk about the latest updates on UK Businesses and COVID-19 every workday at 11 in the morning.
For more information about the recession, be sure to check out Episode 123 of Uncover Wealth Radio. If you’ve missed the LIVE broadcast, you can always revisit the episode here on our website, Annette & Co.