Earlier this year, January if memory serves, UK MSP giant 2e2 went into administration. The latest news seems to be that the administrators are able to pay 2e2 staff but creditors are not likely to see much return not any return at all of monies owed.
Its all fine and well to buy companies and innovate not only technologies but also revenue generating strategies…but if you don’t actually collect the money you’re on a hiding to nothing. I recall that in the case of 2e2 that there were outstanding payments due to the company but for whatever reason were never payed or hugely delayed. I am not saying that this is was the root cause for the folding of 2e2 but I would not be surprised if it certainly aided its demise.
It reminds me of a company with which I have some familiarity, where the CEO was always hammering home EBITDA. Now I reckon that it is important to know how much money you have coming in. However how much use is it really? I would have thought that understanding how much profit you make is far more important…and in that calculation you would use EBITDA, and more importantly the words that come after “Earnings Before”. Surely generating a profit is a better indicator of the health of a company than just how much money it rakes in? Of course I understand that there will be capital costs that would hit profits but even so the impact should planned right? If you know you need more office space and that it might be better to own the property then you should surely be able to have that in your financial plans.
In this company for example there were solutions sold that actually cost more to deliver than would make make in profit.
If by this point you are a finance professional and thinking that I have no idea what I am talking about, well yes. I am not a finance expert by any stretch but I am quite keen on not only keeping people employed but also common sense.
With regards to EBITDA there is quite an interesting article from Forbes here.