History of EBITDA
EBITDA was invented by Liberty Media Chairman John Malone, one of the few investors with a track record that rivals Buffett’s. The cable industry pioneer developed the statistic in the 1970s to assist lenders and investors understand his leveraged expansion plan, which used debt and reinvested revenues to reduce taxes.
During the 1980s, investors and lenders participating in leveraged buyouts (LBOs) considered EBITDA valuable in determining if the targeted firms were profitable enough to service the debt that was projected to be committed in the transaction. Since a takeover would most certainly result in a change in the capital structure and tax obligations, it seemed appropriate to deduct the interest and tax expenditure from earnings. EBITDA became popular during the dotcom bubble, when some firms utilized it to inflate their financial success.
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