RE: How depreciation is accounted for25 Mar 2024 16:51
Some interesting discussions over the last few days.
For me i'm somewhere in the middle - disappointed that overall PBT is a small loss but encouraged by revenue and EBITDA growth, EBITDA margins increasing and a healthy cash generated from operations figure.
Whilst EBITDA can be 'fudged' a bit it is still a useful, and dare i say it the main, indicator for a growing company where they are reinvesting all income so the PBT figure will always be low.
To say EBITDA is not important is also disingenuous. Many companies sell all or part of the business based on this, often between 7 to 10 times EBITDA. Two companies i own did this recently, Croma and EAAS.
Eaas is a good example. A growing company (rev increased from £22m to £33m 2022 to 2023) but due to cashflow issues and therefore high funding PBT is only c£1m. Total value of business was low at c£20m, yet they recently sold part of their business for £29m based on an EBITDA multiplier.
I suspect if either Escape or Boom was approached both would command more than the current SP so the growth is adding value.
Cash generation is key for me - in the results just published cash generated was c£9m, of which c£6m was used to invest in the business (new sites and buying franchises etc) and c£2m on finances (paying for leases etc). Therefore, bottom line cash increased by c£1m.
To say where has the gross profit gone maybe compare this to revolution bar group, RBG. It had revenues of over £150m and made gross profits of £117m, however, failed to make an overall profit. Both companies have a similar business model, however, compared to RBG i'd say XPF are doing quite well
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