These last few weeks I have done 3 training sessions for GE. Two for the operations management program called OLMS and one for the Management Program in Crotonville called MDC (Management Development Course). February was a great month to do finance for my friends at GE.
In the MDC course we provided the Financial Intelligence assessment. The group did better than average. I would expect that from a group of seasoned GE managers. It was fun to have lively debate with some of the questions. There are always questions about a few of our questions in the assessment. The most common question that is challenged asks about EBITDA. EBITDA (Earnings Before Interest Taxes and Depreciation) is a metric that is widely used in banking loan document covenants and for business valuations.
EBITDA used to be the key metric that was used on Wall Street, private equity, and other investors for valuation. Then after the dot com bubble burst and fraud cases like Enron and Worldcom emerged, many analysts started to rethink the EBITDA metric. It is still one of the key metrics we look at for a business but now cash flow measures like free cash flow and operating cash flow are looked at closely.
I like to say that it is not safe to focus on any single metric when evaluating a business. EBITDA and free cash flow are just two of those metrics. There are many others we should consider. With the GE training we consider several other metrics to get a more comprehensive view of the business.
GE took me to Atlanta, Cincinnati, and Crotonville in New York. There were plenty of frequent flyer miles earned and interesting discussions.