Is EBITDA a real metric or a financial mirage?

In the dynamic ecosystem of Mergers and Acquisitions (M&A), few acronyms generate as much debate as EBITDA. While many consider it the “king metric” of valuation, others see it as a veil that hides a company’s structural weaknesses.

Federico Cuevas, Partner at ONEtoONE Corporate Finance in Mexico, analyzes the scope and limitations of this tool, navigating between market standardization and the warnings of investment legends.

The Industry Standard vs. Buffett’s Criticism

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is the undisputed standard for setting multiples in M&A transactions and banking valuations. It allows for an operational “clean-up” to understand the business without the noise of capital structure or taxation.

However, legendary figures such as Warren Buffett and the late Charlie Munger critically labeled it “bullshit earnings.” Their argument? Ignoring depreciation means ignoring the real cost of keeping a company’s assets alive.

“EBITDA is a tool, not a dogma. Anyone who mistakes it for net profit is buying a future problem.”

The “Network Effect”: Why the Industry Refuses to Abandon It

Despite its critics, EBITDA benefits from what Federico Cuevas calls the “network effect.” It has become the Esperanto of finance for two key reasons:

Universal Communication: Debt funds, private equity firms, banks, and investors all “speak EBITDA.” It is the common currency for initial negotiations.
Rapid Comparability: It provides an immediate snapshot of operational capacity and allows companies from different sectors or countries — with diverse tax and capital structures — to be compared quickly.

The Dangers of Comparison: Not All EBITDA Is Created Equal

One of the greatest risks in M&A is assuming that the same number represents the same financial health. Two companies may report identical EBITDA figures while hiding completely different realities:

The Efficient Company: Converts EBITDA into cash quickly while maintaining low mandatory reinvestment levels.
The “Mirage” Company: Reports inflated EBITDA that conceals balance sheet “scars,” such as heavy reinvestment needs (CapEx) or poor working capital management.

Cash Flow: The Ultimate Judge

The key to avoiding deception by superficial figures is to remember one fundamental mantra: EBITDA attracts, but cash flow pays the bills.

At ONEtoONE, the core advice from our experts is always to return to cash flow. When analyzing a transaction, the critical questions are:

Does this EBITDA align with actual cash generation?
What does the cash flow projection tell us about operational sustainability?
Does a multiples-based valuation still make sense when we dig deeper into liquidity?

Conclusion: The Starting Point, Not the Destination

At ONEtoONE, we use EBITDA as a valuable starting point to initiate the conversation, but never as the final verdict of our analysis.

True excellence in financial advisory lies in knowing how to read between the lines. Understanding that EBITDA is only the map, while cash flow is the real terrain on which a company’s value is built.

Watch the explanatory video here: https://www.onetoonecf.com/wp-content/uploads/sites/16/2026/05/El-EBITDA-sirve-o-es-basura.mp4