EBITDA VS.

CASH FLOW
by
Oana
Labes

EBITDA KPIs EBITDA CASH FLOW CASH FLOW KPIS

OPERATING CASH FLOW
1 EBITDA MARGIN EARNINGS BEFORE + INTEREST + EARNINGS + DEPRECIATION + OCF = NET INCOME + NON-
CASH FLOW TO INVESTORS
= FREE CASH FLOW - DEBT
Formula: EBITDA / Revenue
TAXES + DEPRECIATION + AMORTIZATION +/- CHANGES IN CASH EXPENSES (E.G., PAYMENTS
Answers: How much Revenue AMORTIZATION WORKING CAPITAL DEPRECIATION,
AMORTIZATION) + CHANGES
was turned into EBITDA? A FINANCIAL METRIC USED TO ASSESS THE AMOUNT OF CASH MOVING IN AND OPERATING CASH FLOW TO
IN WORKING CAPITAL
OPERATING PROFITABILITY OUT OF A BUSINESS CURRENT LIABILITIES RATIO
2 INterest COverage
CASH CONVERSION CYCLE = OPERATING CASH FLOW /

CASH INFLOWS & OUTFLOWS

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Formula: EBITDA / Interest CCC = DAYS SALES CURRENT LIABILITIES

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Answers: How many times over can OUTSTANDING (DSO) +
EBITDA pay for Interest Expense on DAYS INVENTORY CASH DEBT SERVICE
debt obligations? OUTSTANDING (DIO) - DAYS COVERAGE RATIO (CDSCR)
PAYABLE OUTSTANDING = OPERATING CASH FLOW /
3 DEBT SERVICE COVERAGE (DPO) TOTAL DEBT SERVICE
Formula: EBITDA / (Scheduled (PRINCIPAL + INTEREST)
CASH FLOW RETURN ON
Principal + Interest) ASSETS
Answers: How many times over can CFROA = OPERATING CASH CASH FLOW RETURN ON
EBITDA pay for Interest expense and FLOW / TOTAL ASSETS INVESTMENT
scheduled Principal payments? CFROI = FREE CASH FLOW /
INVESTED CAPITAL
CASH FLOW TO NET
4 FIXED CHARGE COVERAGE
INCOME RATIO =
CASH FLOW PER SHARE
Formula: (EBITDA + Fixed Charges - Cash Taxes OPERATING CASH FLOW /
CFPS = (OPERATING CASH
- Unfunded CAPEX - Shareholder Distributions) / NET INCOME
FLOW - PREFERRED
(Principal + Interest + Fixed Charges) DIVIDENDS) / WEIGHTED
FREE CASH FLOW
Answers: How many times over can net EBITDA AVERAGE NUMBER OF
FCF = OPERATING CASH
COMMON SHARES
pay for all period fixed payment obligations (rent, FLOW - CAPITAL
OUTSTANDING
debt, dividends) EXPENDITURES

5 FUNDED DEBT TO EBITDA

THE CASH CONVERSION
Formula: Total Funded Debt/ EBITDA
CYCLE

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Answers: # years to repay all outstanding debt if
100% of EBITDA went towards principal payments
THE 5 TYPES OF CASH FLOWS
5 EBITDA ALTERNATIVES
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1 OPERATING CASH FLOW

= NET INCOME +
DEPRECIATION/AMORTIZATION + NON CASH
ITEMS +/- CHANGES IN WORKING CAPITAL

2 ADJUSTED EBITDA

= NET INCOME + INTEREST + TAXES +

DEPRECIATION/ AMORTIZATION +
ADJUSTMENTS

EBITDA ISN'T CASH FLOW

3 FREE CASH FLOW TO THE FIRM

= OPERATING CASH FLOW + INTEREST X (1-

DIRECT VS. INDIRECT
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©Oana Labes, MBA, CPA

TAX RATE) +/- CHANGES IN FIXED ASSETS Operating Free Cash Free Cash
EBITDA Cash Flow Flow Flow to Equity
STATEMENTS
4 FREE CASH FLOW TO EQUITY HOLDERS Net Income Net Income Net Income Net Income

= OPERATING CASH FLOW +/- CHANGES IN Depreciation and Depreciation and Depreciation and Depreciation and
FIXED ASSETS +/- CHANGES IN NET Amortization Amortization * Amortization * Amortization *

BORROWINGS
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© Oana Labes, MBA, CPA

Decreases/Increases in Decreases/Increases in Decreases/Increases in

© Oana Labes, MBA, CPA

Interest Expense
AR Balances AR Balances AR Balances
5 ECONOMIC VALUE ADDED
Increases/Decreases in Increases/Decreases in Increases/Decreases in
Tax Expense
AP Balances AP Balances AP Balances
= EBIT - TAXES - WACC X (FIXED ASSETS +
NET WORKING CAPITAL) Non-Operating Expense Decreases/Increases in Decreases/Increases in Decreases/Increases in
/ Non-Operating Income Inventory Balances Inventory Balances Inventory Balances

20 EBITDA ADJUSTMENTS Changes in Other Current

Assets and Liabilities
Changes in Other Current
Assets and Liabilities
Changes in Other Current
Assets and Liabilities

PERSONAL TRAVEL &

NON-OPERATING Net Capital Expenditures Net Capital Expenditures
ENTERTAINMENT (CAPEX) (CAPEX)
INCOME
OWNER PENSION * also subtract any other non-
cash income or expenses Net Borrowing
EXPENSES OUTSIDE EXPENSES
OPERATING BUSINESS
SEVERANCE

PROFIT vs. EBITDA vs. CASH

UNREALIZED GAINS COSTS
OR LOSSES 16 CASH FLOW MISTAKES
NON-RECURRING
ONE-TIME REVENUE OR PROFESSIONAL FEES NO ROLLING MISALIGNING
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CASH FLOW SOURCES

©Oana Labes, MBA, CPA

EXPENSES FORECAST
IMPROPERLY NO SHORT TERM IGNORING
FOREIGN EXCHANGE EXPENSED/ CASH FLOW QUALITY
WORKING CAPITAL LINE
GAINS OR LOSSES CAPITALIZED ITEMS
INACCESSIBLE UNDER BUDGETING
GOODWILL WORKING CAPITAL LINE DEBT PAYMENTS
BELOW MARKET
IMPAIRMENT COMPENSATION NO CASH FLOW
UNMANAGED CASH
ASSET CONVERSION CYCLE CULTURE
FAIR MARKET RENT
WRITE DOWNS
FAILING TO NOT
NEGOTIATE TERMS FOLLOWING UP
PROVISIONS AND TAX MANAGEMENT
RESERVES STRATEGIES INVOICING MISCACULATING
LATE COVENANTS
EXCESS OWNER AGRESSIVE EARLY SUPPLIER
COMPENSATION PERCENTAGE OF MANUAL & PAPER BASED
PAYMENTS W/O BENEFIT
COLLECTION PROCESS
COMPLETION REVENUES
PERSONAL EXPENSES OVERSTOCKING IMPROPERLY USING
INVENTORY PAYMENT DISCOUNTS

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