SmileDirectClub Sets Meaningless 'Profitability' Goal

"Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA," said Charlie Munger earlier this month. "You're almost announcing you're a flake."

Munger, vice chairman of Berkshire Hathaway and longtime business partner of Warren Buffett, doesn't mince words when it comes to a metric that money-losing companies have increasingly adopted. Adjusted earnings before interest, taxes, depreciation, and amortization is not a good measure of profitability. It's not a good proxy for cash flow. It's lipstick on a pig, and nothing more.

Despite its meaninglessness, adjusted EBITDA has become the "profitability" metric of choice for companies including, but certainly not limited to, Uber, Lyft, and Pinterest. You can now add SmileDirectClub (NASDAQ: SDC) to the list. After a disastrous fourth-quarter report that sent the stock crashing, the provider of dental aligners has set a goal of turning adjusted EBITDA positive by the fourth quarter of this year.

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Source Fool.com