Page 16 - Demo samer flip book

Investopedia.com – the resource for investing and personal finance education.
We identified five key lines from Sprint's income statement. (The generic label for the same line is in parentheses):
1. Operating Income before Depreciation and Amortization (EBITDA) Sprint does not show EBITDA directly, so we must add "depreciation and amortization" to operating income (EBIT). Some people use EBITDA as a proxy for cash flow--as depreciation and amortization are non-cash charges-- but EBITDA does not equal cash flow because it does not include changes to working capital accounts. For example, EBITDA would not capture the increase in cash if accounts receivable were to be collected.
The virtue of EBITDA is that it tries to capture operating performance--that is, profits after cost of goods sold (COGS) and operating expenses, but before non operating items and financing items such as interest expense. However, there are two potential problems. First, not necessarily everything in EBITDA is operating and recurring. Notice that Sprint's EBITDA includes an expense of $1.951 billion for "restructuring and asset impairments." Sprint surely includes the expense item here to be conservative, but if we look at the footnote, we can see that much of this expense is related to employee terminations. Since we do not expect massive terminations to recur on a regular basis, we could safely exclude this expense.
This tutorial can be found at: http://www.investopedia.com/university/financialstatements/ (Page 16 of 66)
Copyright © 2004, Investopedia.com - All rights reserved.