Dear all,
I am in the final hours of preperation for my exam. I need inspiration for some questions to be answered only at a high-level (conceptual). I am happy for your inputs and additional thoughts. Thank you!
Question 1 - What are some of the “real” and accounting choices managers could make to maximize EBIT or EBITDA, even if it means lower net income (and cash flows)?
My answer: Basically I struggle to find a proper answer. If a manager forgoes a project with positive NPV, it does not maximise the EBITDA figure in the long run. If it was to maximise EBIT, a manager might forgo a project because the reported EBIT number will be higher before depreciation and amortization expenses - however, the real net in come and cash flow might be lower. Happy to hear your thoughts!
Question 2 - What are some of the “real” and accounting choices managers could make to maximize EBIT or EBITDA, even if it means lower net income (and cash flows)?
Basically the questions ask, how a manager can lower operational expenses - true? So a manager could, as already mentioned above, forgo positive NPV projects in order to keep operational costs low and maximize EBITDA. Are there more factors to consider?
Thank you so much for any help!
I am in the final hours of preperation for my exam. I need inspiration for some questions to be answered only at a high-level (conceptual). I am happy for your inputs and additional thoughts. Thank you!
Question 1 - What are some of the “real” and accounting choices managers could make to maximize EBIT or EBITDA, even if it means lower net income (and cash flows)?
My answer: Basically I struggle to find a proper answer. If a manager forgoes a project with positive NPV, it does not maximise the EBITDA figure in the long run. If it was to maximise EBIT, a manager might forgo a project because the reported EBIT number will be higher before depreciation and amortization expenses - however, the real net in come and cash flow might be lower. Happy to hear your thoughts!
Question 2 - What are some of the “real” and accounting choices managers could make to maximize EBIT or EBITDA, even if it means lower net income (and cash flows)?
Basically the questions ask, how a manager can lower operational expenses - true? So a manager could, as already mentioned above, forgo positive NPV projects in order to keep operational costs low and maximize EBITDA. Are there more factors to consider?
Thank you so much for any help!