Morning. Somebody asked how profitable the business is. You gave them one number, and there are five.
Finance.
The Profit Ladder
When you say the business made money last year, which of the five lines are you quoting? The rung you reach for first is the one that removes what you least want to look at — and quoting it has been standing in for reading the other four.
Benjamin Graham and David Dodd, both teaching at Columbia, published Security Analysis in 1934, into the wreckage of an era that had treated reported earnings as a fact. Their chapters on the income account argue the opposite: reported profit is a manufactured figure, and the analyst's job is to unmanufacture it. They showed how depreciation policy, non-recurring gains and charges routed around the income statement into surplus could each move the profit line without anything changing in the business underneath, and they insisted on normalising earnings across a period of years rather than trusting any single one. EBITDA didn't exist when they wrote. It's a much later invention, no accounting standard defines it, and it entered the language with the leveraged buyout era for a reason. Each rung of the ladder answers a genuine question. The trap is that most operators don't choose a rung at all; they reach for the highest one that still describes them favourably.
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