EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization) is a very popular, but also controversial measure of operating performance in the bulk shipping industry. It is popular because many investors base their investment decisions on EBITDA figures. In fact, most shipping companies report EBITDA in their earnings report. It is also controversial, because it is not recognized by US GAAP and lacks a universal definition. In this article I will look closely at EBITDA, its advantages and drawbacks, and how to properly use it when considering an investment in shipping. I will use as sample four publicly traded shipping companies, namely Diana Shipping Inc. (DSX), Eagle Bulk Shipping Inc. (EGLE), Genco Shipping & Trading Limited (GNK), and Safe Bulkers Inc. (SB).
EBITDA is a pro-forma accounting figure that measures the operating efficiency of a company, taking into consideration vessel operating expenses and administrative overhead. It also measures a company's capacity to service its debt obligations, and is frequently used in loan covenants. EBITDA is an indirect method of calculating a company's operating margin. In that regard, it is similar to the indirect method of calculating the operating cash flow.
One of the greatest advantages of EBITDA is that it is readily available, almost as ubiquitous as net income or earnings per share. Even when it is not reported (a notable exception in our sample is Diana Shipping Inc.), an investor/analyst could easily calculate it based on the company's income statement.
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EBITDA is a pro-forma accounting figure that measures the operating efficiency of a company, taking into consideration vessel operating expenses and administrative overhead. It also measures a company's capacity to service its debt obligations, and is frequently used in loan covenants. EBITDA is an indirect method of calculating a company's operating margin. In that regard, it is similar to the indirect method of calculating the operating cash flow.
One of the greatest advantages of EBITDA is that it is readily available, almost as ubiquitous as net income or earnings per share. Even when it is not reported (a notable exception in our sample is Diana Shipping Inc.), an investor/analyst could easily calculate it based on the company's income statement.
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