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Old 15th Jul 2014, 09:56
  #6 (permalink)  
HyFlyer
 
Join Date: Oct 2005
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Exactly......real profit is only AFTER you have covered all the costs of actually doing the business.


Or put another way.

I borrow $10 million at 5% a year...=$500,000

I buy an $8 million jet and have $2 million for setup/fixed ($1 million) and offsetting operational costs.

I sell flights at $2000/ hour that really cost $3000/hour to fly.

I fly 1000 hours, because customers love a bargain....so $2 million of Revenue....and needing $1million to offset the operating costs.

Hence. $2million revenue but $2.5 million of costs which in the real world is a loss of $500,000......and a business doomed to fail.

...but on this basis it would be a business for sale at $9million.......!!!!

(I haven't even considered the deprecation of the aircraft asset, nor any corporate taxes due in the above...which only make the picture worse.)

EBITDA is a useful accounting number for analysis purposes, but of little worth for understanding real profitability without other data.
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