EBITDA - a non-Generally Accepted Accounting Principles metric that measures earnings before interest, taxes, depreciation
and amortization - may make companies with a large number of fixed assets
on their balance sheets look healthier than they actually are, according to business turnaround expert Ted Gavin, writing for Forbes.
Gavin notes that understanding the amount of fixed asset depreciation
has limitations when it comes to determining a company's current viability. Rather, it measures the company's previous capital expenditures and doesn't bring anything to the table in terms of determining the business' future asset needs.
As Gavin writes, "EBITDA leaves the viewer blind as to both short- and long-term asset replacement needs."
Companies that keep accurate, up-to-date fixed asset
records can use these to make more informed asset replacement predictions. Fixed asset management
software can help them keep track of items' depreciation schedules
, maintenance histories, insurance details and more.
Asset management offerings such as Sage FAS Fixed Asset Accounting
Software can also help companies identify ghost assets that may have been erroneously kept on their balance sheets. Ghost assets are items that are no longer being used by the business despite still being on its books. If left unchecked, they can inflate insurance premiums and taxes.