Words that hide: When vocabulary dresses up the accounts

Official accounts follow strict rules. But around them, companies add their own numbers, with their own words.

These words do not necessarily lie. But they choose what you are shown. Four of them deserve suspicion.

First word: EBITDA. It is profit before interest, taxes, depreciation and amortisation. A result before a lot of things.

Then comes adjusted EBITDA. Adjusted by whom? By the company itself. Adjusted for what? For whatever it chooses.

Say an EBITDA of one hundred million. Restructuring costs are removed, fifteen million. They no longer count.

Shares given to employees are removed, ten million. Then launch costs, eight million.

Adjusted EBITDA reaches one hundred and thirty-three million. Thirty-three per cent better, without one more customer.

Second word: exceptional charges. A rare cost, which should not happen again.

But some companies have an exceptional charge every year. One restructuring, then another, then another.

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Twenty million a year, five years running: one hundred million. What comes back every year is no longer exceptional. It is a normal cost.

Third word, the most dangerous: off balance sheet. Commitments that do not appear on the balance sheet.

The most famous example is called Enron. An American energy giant, admired, and ranked among the country's largest companies.

Enron housed its debts in separate companies, off its balance sheet. On paper, the company looked solid.

When the schemes came to light, confidence collapsed. Bankruptcy in December two thousand one.

Thousands of employees lost their jobs and their retirement savings, invested in Enron shares. Its auditor vanished soon after.

Since then, the rules have been tightened. But off balance sheet items still exist, and you read them in the notes.

Fourth word: stock-based pay. Instead of paying in euros, the company pays its employees in shares.

Not a euro leaves the till. So some companies remove it from their adjusted numbers, as if it were not a cost.

But it is one. These new shares dilute shareholders. The cost is real, it is simply paid by you.

Say one hundred million of adjusted profit, and thirty million paid in shares. The real profit: seventy million.

The twist: these adjusted numbers are often the ones put forward. The official number comes further on, smaller.

A simple rule: always read the official number next to the adjusted one. And watch the gap, year after year.

A stable gap can be explained. A gap that grows every year tells a story they would rather not tell you.

Adjusted, exceptional, off balance sheet, paid in shares. When you read these words, always ask: and without?