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Improved Communication with Non-GAAP Financial Measures
Letter Summary:
The terms “EBITDA” and “Free Cashflow” should only be used for disclosure when the measure is the standardized version. Therefore the only terms used for disclosure would be EBITDA or Adjusted EBITDA. EBITDA is most useful as a valuation method and is not a proxy for cash flow from operations as outlined in the Statement of Cash Flows. Substitution of cash flow information for EBIDTA should be discouraged. Stock-based compensation should never be added back to EBITDA even if management believed that it would be appropriate to do so.
Overview of the Council’s Comments:
CAC agrees with the use of a standard definition with “adjustments” to provide information from “managements’ eyes”. From a user’s perspective, it is the items adjusted and the rationale behind these adjustments that are as important as the result of the adjustments.