Vale S.A., a Brazilian mineral products company, provided the following note on a voluntary basis in its 2009 annual report:  11—Cash Generation (Unaudited) Consolidated operating cash generation measured by EBITDA (earnings before financial results, equity in subsidiaries, income taxes, depreciation, amortization and depletion, increased by dividends received was R$18,649 as of December 31, 2009, against R$35,022 as of December 31, 2008, representing a decrease of 46.8 percent.
EBITDA is not a BR GAAP measure and does not represent the expected cash flow for the reporting periods, and therefore should not be considered as an alternative measure to net income (loss), as an indicator of operating performance or as an alternative to cash flow as a liquidity source.
Vale definition of EBITDA may not be comparable with EBITDA as defined by other companies.

Required:  

Provide a response to each of the following questions:    

a. What does EBITDA measure?     

b. Why do you think Vale included Note 11, Cash Generation, in its 2009 annual report?     

c. Why might a financial analyst use EBITDA in evaluating a company’s performance?     

d. What limitations exist in using EBITDA to evaluate a company’s performance?

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EBITDA-Consolidated Operating profit EBIT Depreciation/amortization of goodwill Impairment Dividends received EBITDA Depreciation/amortization of goodwill Dividends received Impairment Equity Results Gain (loss) on disposal of assets Financial results, net Income tax and social contribution Minority interests Net income 2009 13,181 5,447 18,628 21 18,649 (5,447) (21) 116 93 1,952 (4,925) (168) 10,249 2008 27,400 5,112 2,447 34,959 63 35,022 (5,112) (63) (2,447) (1,325) 139 (3,838) (665) (432) 21,279