I understand EBITDA is supposed to be a proxy for operating cash flow. However, since we already have a figure for OCF on the cash flow statement, why do we even use ebitda? Is it because it’s easier to forecast ebitda? Why would we still look at it for historical years if we have the actual figure for operating cash flow?
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In a growth scenario, operating cash flow will be reduced by working capital. So EBITDA is a better “steady state” CFO proxy.
But yeah, cash flow multiples are a thing and some investors prefer them.
Credit guys in particular as they don’t care about growth
But shouldn’t credit guys care even more about the impact of working capital as it would be a cash draw on FCF preventing the firm to pay as much debt back? So wouldn’t OCF be a more applicable metric than EBITDA for them? I’m also thinking this would apply to PE guys with an LBO or am I thinking about this completely wrong
EBITDA stands for Earnings Before Income Taxes Divided by Assets. It is thus a ratio of levered returns that excludes taxes so that 2018+ years can be compared to pre-2017 years (before the corporate tax cut). It is NOT a measure of operating cash flow - EBITDA isn’t even measured in dollars, it is measured in percentage.
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Is this supposed to be funny? That's like the worst definition I've seen for EBITDA lol
This is the type of analysis I come here for. I look forward to seeing you on CNBC one day.
The use of EBITDA has since spread to a wide range of businesses. Its proponents argue that EBITDA offers a clearer reflection of operations by stripping out expenses that can obscure how the company is really performing.
EBITDA is essentially net income with interest, taxes, depreciation, and amortization added back. EBITDA can be used to analyze and compare profitability among companies and industries, as it eliminates the effects of financing and capital expenditures.
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