S&P, for example, uses the ratio of ebitda to a company's debt as one of the principal factors in determining its ratings.
This explains why Mr Messier's total pay last year was an impressive euro5.12m, despite the fact that Vivendi announced France's biggest-ever corporate loss of euro13.6 billion.In Vivendi's case there are special reasons why the ebitda number is misleading.
S&P admits that its overall rating on Vivendi is qualitative rather than purely quantitative.There is another way to demonstrate the weakness of ebitda as a tool for assessing Vivendi.
For most investors, ebitda is synonymous with cashflow, a view that few companies discourage.
As a result, last year Vivendi's telecoms businesses contributed a disproportionately high euro2.31 billion to its euro5.04 billion ebitda (earnings before interest, tax, depreciation and amortisation).Assume, as some analysts do, that Britain's Vodafone might pay some euro6 billion for Vivendi's stake in Cegetel.
It looks like it is paying slightly more than that, as Oriental's ebitda is now "approximately $500m", according to ABI.
He has also said that he expects ebitda to reach euro6 billion, which implies a total debt of euro18 billion.Can Vivendi's targets be taken on trust?
S&P's latest estimate is that Vivendi has euro2 billion-3 billion of debt to repay in the rest of this year, and a similar sum in 2003.Nonetheless, most analysts appear too sanguine about Vivendi's ability to wriggle its way to safety, in part because they accept its flattering ebitda numbers.
Vivendi justifies counting all of SFR's ebitda because it has board and management control of Cegetel.The effect on its stated ebitda is dramatic (see table 1).
Vivendi's true ebitda was therefore only around euro3.5 billion, and its debt/ebitda ratio was 5.1, far worse than the 3.8 under Vivendi's own accounting.Only near-bankrupt companies show ratios as large as 5, so The Economist asked S&P why it accepts Vivendi's full consolidation of Cegetel's earnings.
Just over half of these firms had ratios of net debt to gross operating profits (or "EBITDA") of over three times last financial year, and/or have net debts in excess of their current market value, two rules of thumb to identify knackered balance-sheets.
