Handling depreciation when valuing a small business

by a professional from Bishop's University

3 years ago

The difference between one truck and 500.
Dan was watching an old video of mine about valuing small businesses and posed a question about something Warren Buffet says.
Basically, Buffet doesn’t like EBITDA valuations because he doesn’t believe that little fairies will pay for the equipment and machinery used in a business.
But, as I teach in this week’s video… the depreciation figure you see on the paper is NOT the way to ward off the magic fairies…
Learn the answer to this question and more in this week’s video: https://youtu.be/_S2m1dieX6w

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professional from Marquette University

Good video ^David Barnett. A buyer's concern should be anticipated cap ex. With all the accelerated depreciation techniques available (like Section 179) it can get tricky to see true earnings. So EBITDA less cap ex and operating interest gives a you a good estimate of free cash flow.

3 years ago | like reply | 3 likes

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