Samer Choucair: EBITDA Beautification Is Repricing Risk Across Capital Markets
Investment leader Samer Choucair warned that excessive reliance on earnings before interest, taxes, depreciation, and amortization, or EBITDA, can create a misleading picture of earnings quality, particularly as adjusted earnings become more widely used in acquisitions and private credit while financing costs and capital expenditure remain elevated.
Samer Choucair said the issue is not that EBITDA should be discarded, but that it must be assessed within a broader framework linking profitability to cash flow, debt, and capital expenditure.
“EBITDA is not necessarily an accounting fiction, but it separates profitability from the cost of remaining competitive,” Choucair said. “Any capital-allocation process that ignores that distinction risks buying an operational illusion.”
According to Samer Choucair, the problem becomes more serious when accounting and operational adjustments are used to increase reported earnings while excluding costs that recur in practice. These can include restructuring expenses, stock-based compensation, and other items described as non-recurring despite appearing repeatedly.
In those cases, a valuation multiple may appear attractive while the company’s effective leverage is materially higher than headline figures suggest.
Choucair believes the 2026 market cycle makes the issue particularly important. Markets remain highly sensitive to interest rates and the cost of debt, while companies are simultaneously increasing spending on artificial intelligence, data centers, energy, and infrastructure.
For asset-intensive businesses, continued reinvestment is essential. Adding depreciation back to earnings therefore does not mean the economic cost of maintaining or replacing those assets has disappeared.
“Vision 2030 is deliberately increasing capital expenditure,” Choucair said. “That is not a flaw in the model. But it means an enterprise-value-to-EBITDA multiple without a serious examination of free cash flow can price growth before that growth becomes distributable cash or cash available to service debt.”
This distinction is particularly relevant across Saudi Arabia and the wider Gulf, where investment is expanding in electricity, energy, logistics, tourism, manufacturing, and digital infrastructure.
Choucair said differences between sectors should also determine differences in valuation methodology. An asset-light business with strong cash conversion cannot be assessed in exactly the same way as a company that requires substantial and recurring capital expenditure to maintain growth.
For institutional investors, Samer Choucair argues that EBITDA should be considered alongside several interconnected measures, including debt relative to unadjusted earnings, the conversion of earnings into cash flow, capital expenditure relative to depreciation, and the persistence of items excluded from adjusted earnings.
A decline in cash generation while operating earnings continue to rise, Choucair said, should be treated as a signal requiring deeper investigation before an investment or financing decision is made.
“In cycles where financing costs remain above pre-pandemic levels, interest expense moves from something that can be added back above the line into an immediate cash constraint,” Choucair said. “EBITDA postpones that constraint on paper only.”
He added that sectors particularly exposed to EBITDA misinterpretation include telecommunications, aviation, mining, utilities, real estate, and some technology companies that exclude substantial costs from adjusted earnings.
By contrast, companies with lower asset intensity, less leverage, and stronger conversion of earnings into cash are generally better positioned to preserve value during periods of tighter financial conditions.
In private equity and credit markets, Choucair said earnings quality has become increasingly important in determining transaction value, especially when adjusted EBITDA is used to estimate debt capacity.
Higher reported earnings do not automatically mean lower leverage if those earnings fail to convert into cash flow capable of servicing financing obligations.
Samer Choucair stressed that EBITDA will remain a valuable comparative metric, but it should not be used in isolation to determine the value of an asset.
“Corporate governance in this cycle is not measured by the absence of adjustments,” Choucair said. “It is measured by the transparency of the bridge from raw operating profit to free cash flow. The investor who understands that conversion understands the risk. The investor who focuses only on the larger number before interest and depreciation is buying a prepared story, not a tested asset.”
Choucair concluded that the next phase of the market cycle is likely to create a wider distinction between companies that use EBITDA to explain underlying operating strength and those that use it to obscure the true cost of capital and asset replacement.
As global financing continues to be repriced, Samer Choucair believes the ability of companies to generate cash after interest, taxes, and capital expenditure will become increasingly influential in the decisions of investment funds, lenders, and financial institutions.