EBITDA's Foggy Bottom Line

Critics say the accounting method can obscure grim financial realities -- and some see AOL Time Warner as the classic example

Once upon a time, most companies treated revenues, cash flow, and net income as the sacred measures of performance -- the numbers on which investors should focus. Then about a decade ago, media and technology outfits adopted their own performance benchmark -- a variation on cash flow known as EBITDA, or earnings before interest expense, taxes, depreciation, and amortization. Telecoms followed suit, and over the years the industries that embraced EBITDA began to promote it as a more appropriate measure of earnings than net income.

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