There's a magic number which works its way into company results, one that transforms losses into profits merely with the wave of a finance chief's wand. It is known as 'adjusted earnings' and it exists to spellbind investors into thinking things are much better than they are.
Adjusted earnings, otherwise known as adjusted Ebitda, is widespread and an important concept for DIY investors to get their heads around. Ebitda shows earnings before interest, taxes, depreciation, and amortisation, and is a metric treated with great suspicion by some investment titans. Charlie Munger once said: “Every time you hear Ebitda, just substitute it with bulls*it earnings."
That’s an understandable position, given Ebitda strips out some pretty key financial factors. It can be a useful cash flow performance indicator, if an investor knows what to look for.