Money Buzz 09/03

Online charitable systems for your employees; a fundamentally flawed investing strategy
Magazine Contributor
3 min read

This story appears in the September 2003 issue of Entrepreneur. Subscribe »

Way to Give!
It's a nice idea in theory--encourage employees to contribute to worthy causes, and you'll help make the world a better place, boost morale and receive a nice tax break. But thanks to high-profile cases of mismanagement, charitable programs in the workplace are becoming the opposite of the image-enhancing good deed they're meant to be.

But don't give up. Instead, consider an online contribution system such as KindMark (www.kindmark.com) or Cybergrants (www.cybergrants.com) that can help you guard against getting burned, while simultaneously bringing greater efficiency and flexibility to your charitable program. "Third-party giving systems enable employees to access comprehensive information about each nonprofit and make donations, sign up for volunteer activities, apply for matching grants and more," says Craig Wichner, CEO of Mill Valley, California-based KindMark.

Online giving systems also handle contribution paperwork, implement payroll deductions, provide receipts and distribute the funds. "We help companies screen nonprofits, and we significantly lower the cost and time spent on giving programs," says Wichner, "so more money gets to the intended recipients."

At Your Own Risk
In recent years, the investing public fell hard for companies with strong earnings before interest, taxes, depreciation and amortization (aka EBITDA), viewing it as a tool to measure a company's fiscal health. But looking to EBITDA as a substitute for cash-flow calculations is a dangerous investment strategy, say experts.

"As an investment tool, it's fundamentally flawed," asserts John Percival, an adjunct finance professor at the Wharton School. "EBITDA was designed to help lenders figure out whether a company would be able to generate enough revenue in the short term to pay interest on a loan." It's not intended to show how well a business is doing, says Percival.

"A true cash-flow number is a lot of work," Percival points out. "You have to adjust for changes that have taken place in working capital and take into account that you have to invest in capital expenditures to grow your business." By contrast, EBITDA is easy to compute: Add depreciation, amortization and operating income. One presumption makes the figure particularly dangerous for investors: "It presumes all revenues are collected, that you don't tie up anything in accounts receivable or inventory, and that you never have any issues with payables," says Percival. "So it tends to make companies look good." And that's just the kind of sugarcoating today's binge-recovering investors don't need.


$15.7
BILLION
is the total amount of angel investments in 2002, compared to
$30
BILLION
in 2001.
SOURCE: Center for Venture Research


61%
of African Americans have money invested in the stock market this year. In 2002,
74%
did.
SOURCE: Ariel-Schwab


Jennifer Pallet (jpellet5@aol.com) is a New York City freelance writer specializing in business and finance.

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