What are the pros and cons of using EBITDA as the proxy for value?

Answer

Pros: (1) Capital structure neutral — comparable across companies with different leverage; (2) Tax-jurisdiction neutral — strips out tax rate differences; (3) Removes accounting noise from depreciation policies; (4) Universally understood — every banker, analyst, and investor uses it. Cons: (1) Ignores CapEx — meaningless for capital-intensive businesses (airlines, semiconductors); (2) Doesn't apply to early-stage companies with negative or no EBITDA; (3) Ignores working capital cash needs; (4) Inappropriate for balance-sheet-driven businesses (banks, insurers); (5) Can be manipulated through 'adjusted EBITDA' add-backs.