This Is The Biggest EBITDA Drop Outside Of A Recession Since 2000
To finance professionals, EBITDA is a proxy for corporate cash flow, while Adjusted EBITDA is a proxy for telling investors whatever they want to hear. Most of the time it involves a unjustifiably high cash flow number, one which has no basis in reality.
To be sure, we have railed against "adjusted" numbers, be they EBITDA, EPS or revenue (in the case of Tesla) for years, culminating past summer "The Non-GAAP Revulsion Arrives: Experts Throw Up All Over "Made Up, Phony, Smoke And Mirrors" Numbers", at which point we got tired of repeating the same story over and over (with the occasional exception like yesterday's Alcoa numbers which as we showed were a GAAP debacle, something perhaps reflected in the stock price today which has just dropped to a new post-crisis low).
That said, we were very surprised to find that overnight none other than Bank of America, through its chief HY Credit Strategist Michael Contopoulos, picked up this torch with a scathing report on the farcical nature of "adjusted" financials, in which the author warns that "from our seat, we see global and US economic growth that is slowing and corporate earnings growth that has diverged more and more from revenue growth. We are increasingly concerned with the number of companies (non-commodity) reporting earnings on an adjusted basis versus those that are stressing GAAP accounting, and find the divergence a consequence of less earnings power."
Here are the facts:
Consider that when US GDP growth was averaging 3% (the 5 quarters September 2013 through September 2014) on average 80% of US HY companies reported earnings on an adjusted basis. Since September 2014, however, with US GDP averaging just 1.9%1, over 87% of companies have reported on an adjusted basis. Perhaps even more telling, between the end of 2010 and 2013, the percentage of companies reporting adjusted EBITDA was relatively constant and since 2013, the number has been on a steady rise.
And as BofA admits, "we are increasingly concerned with this trend, as on an unadjusted basis non-commodity earnings growth has been negative 2 of the last 4 quarters, representing the worst 4 quarter average earnings growth in a non-recessionary period since late 2000."
And since a simpler word for "negative growth" is drop, we wonder just how the "but one must exclude energy..." crowd would spin the fact confirming that when one does exclude energy, the drop in EBITDA is the worst in the 21st century?
Of course, none of this should be in any way a surprise actual financial professionals. However, that those who until recently were paid to stick their head in the sand are starting to speak up, means that very soon the market will bs "shocked" to learn that up to 15-20% of earnings (or EBITDA), was made up, in the process sending PE and EV multiples higher by 20%, leading to a substantial revaluation of equity or enterprise value, one not in an upward direction.
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What "outside a recession"? We've been in a recession for seven years.
200% correct and now former FED members are saying they forward contracted the money supply. I got my 100+ years storage beef coming Friday. I probably should double the order.
Beef flavor soyalent green,yummy.
We've been in a depression obscured by debt since 2000.
There, fixed that for ya.
If I wanted to be prickly, I could make a case there has not been any real growth (give or take temporary business cycle ups and downs) since Nixon left office.
Agreed, but the full time work really started down hill after the 2000 collapse when the globalists started accelerating sending the jobs overseas.
Not really a recession more like purgatory
Can we (should we) call the white house and ask if Obama can save us? When he was running for re-election CNN actually printed an article saying he was the second coming.
iS IT 3:30 YET? sAVE IS ON THE WAY. tAKE IT TO THE BANK BITCHEZ!
we have lift-off up 100 on a day a major world bank warns to sell before the impending apocalypse,tonight is the night Barrack announces that he is in fact actually superman and as such will now be handling all national threats personally
That would be the Royal Bank of Scotland: "Sell everything ahead of stock market crash, say RBS economists" (MSM Money)
http://www.msn.com/en-us/money/markets/sell-everything-ahead-of-stock-ma...
DOW/S&P up .70+% as we post. The State of the Union (read Federal Reserve) is strong.
State of the Unicorn... The Skittle-shitting Unicorn.
I think it would be easier to just report the "Good News" and we can safely assume that anything not mentioned is some degree of fucked. It would save a ton of keystrokes.
who says we're "outside a recession"? of course we're in one. wall st needs to dump stocks and short before they give the ok to the BLS to admit we are in recession. or, simply put, this time is NOT different.
The wheels have come off and we are at that moment before the chasis meets the ground.
The General Lee is about to be totalled
"We've been in a recession for seven years."
Ok then Tim Technical. Why you gotta be like that?
See if they will go for the Obama miracle rally 2
https://www.tradingview.com/x/udwrxP53/
Yesterdays BS
This may be the time the dead wood finally gets set adrift. I think it has been building up since about 1946. Shit can only be piled so high...then something has to happen. I wonder if O'Bummer is going to cry tonight. Maybe he will announce a repeal of some amendments by presidential proclamation due to a hemorrhoid attack.
Bank of Lynch could save a lot of words by calling it what it really is ..... massive accounting fraud !
Only one thing that can keep this game going and it would be to start whispering QE5 really fast now...
Judging by the chart, I'd say this is only the 2nd worst drop for the 21st century...so far.
I suspect "commodity earnings growth" hasn't been much better. /s