EBITDA - FCF?

This may be a very stupid question, but I think it'd be better if someone else besides my professor can explain it to me.

Why is EBITDA the closest proxy to Free Cash Flow: and which type of FCF - levered or unlevered?

EBITDA = Rev - COGS = GP - Opex

Levered FCF = EBIT (1-Tax) + D&A +/- change in working capital - Capex
Unlevered = NI (1-Tax) + D&A +/- change in working capital - capex - debt repayment.

 

Neither. It's a proxy for operating cash flow or the CFO section from the CFS. Could be wrong though. The idea is it should be close to CFO because net income is less than EBITDA and includes interest expense and D&A. The D&A is added back in CFO as well as negative changes in net working capital as well as losses from the income statement, so it should be relatively close. Of course there can be significant discrepancies though. EBITDA is relatively easy to calculate though and good approximation of operating cash flow.

 

Your CFO equation is correct, but you're forgetting to subtract gains from IS and add losses from IS. For example, when a company sells an asset for more than book value, it recognizes a gain on sale. If it sells it for less than book value, it recognizes a loss on sale. These are both non-cash items on the IS, so you need to subtract gains in CFO and add losses. That's what I meant by add losses. For NWC, a negative change in NWC will increase CFO because current assets are going up less than current liabilities. Basically my point was that EBITDA should be close to CFO because CFO uses Net Income(which is a fraction of EBITDA) but then increases with negative change in NWC and losses from income statement. It also adds back D&A which EBITDA is already accounted for. So in general, EBITDA will be relatively close to CFO. It's not exact, and in some scenarios, it may not even be close. However, if you wanted a quick general measure of CFO, you could calculate EBITDA instead of having to do the long ass formula. Remember EBITDA is just a proxy for operating cash flow. It's basically an approximation, and it won't be completely exact.

 

**EBITDA - How to Find-->via Public filings / Calculate "quick & dirty" estimate ** see my post on EBITDA below - lengthy but helpful. Portion pasted below w/ hyperlinks https://www.wallstreetoasis.com/forums/alternatives-to-bloomberg-for-br…

**EBITDA - ways to pull publicly / quick & dirty estimate ** 1) EDGAR Search - https://www.sec.gov/edgar/searchedgar/companysearch.html 1A) 10-K / 10-Qs - estimate EBITDA-- Operating Income + D&A = EBIT + DA = EBITDA 2) 10-K / 10Qs - EBITDA disclosed https://www.sec.gov/Archives/edgar/data/1530950/000153095017000231/0001… 3) Investor Presentation 4Q19 /- Sources & Uses and Pro Forma Cap Table 4) Lender Presentation - Public - Sources & Uses and Pro Forma Cap Table https://www.sec.gov/Archives/edgar/data/1357615/000114036118013387/ex99… 5) Press Release - 4Q19 Results - non-GAAP financial results supplement https://www.postholdings.com/2019/11/21/post-holdings-reports-results-f… 6) Credit Agreement - Definitions - EBITDA - sometimes disclosed https://www.sec.gov/Archives/edgar/data/1528930/000117184320001015/exh_… 7) S&P / Moody's Ratings Reports a) Sometimes disclosed - Incremental Facility terms. "$210 or 100% EBITDA" = $210

Combined Company Non-GAAP Pro Forma Adjusted EBITDA Reconciliation

Operating Income $1,100 +D&A 959 + Other non-cash, net 42 + Business optimization costs 77 = Operating EBITDA $2,178 (Op Income + D&A = 94% of $2,178)

  • Acquisitions and Disposals 15
  • Unrealized cost savings 168 = Adjusted EBITDA $2,361 (Op Income + D&A = 87% of $2,361

-so I think Operating Income +D&A is a decent quick and dirty estimate, if you arent going to be penalized for 100% accuracy

https://www.sec.gov/Archives/edgar/data/1357615/000114036118013387/ex99…

 

Beatae tempore ut tenetur animi iusto est est. Dicta illum nobis vel quia quo. Et quia est distinctio ea.

Non quae illo voluptas maxime consequuntur rem fugit. Vel impedit aut et. Voluptatibus ut nostrum officia ea non.

Et consequatur sequi minus maxime. Et asperiores ut odit fuga. Ea architecto consectetur sapiente id qui reprehenderit.

Asperiores maiores distinctio tenetur iusto omnis. Dolores molestias aut beatae distinctio. Omnis nam saepe sit voluptas eum excepturi. Velit amet voluptatem velit dolorum necessitatibus ratione. Quo est et deleniti sit in et eligendi. Reiciendis saepe cumque consequatur enim omnis vel. Omnis voluptate et cupiditate est.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”