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• #FREE CASH FLOW FORMULA FROM EBITDA FREE#

Use this Cheat Sheet to evaluate the financial health, performance, and viability of a business or project. 🔔Don’t forget to ring the bell at the top right of my profile to get notified of new posts.īecause every business needs regular financial health check-ups. ➕If you enjoyed this post, follow me for more cash flow and finance insights. So are you Pro-EBITDA or Pro-FCF? Let me know in the comments below! 👇

#FREE CASH FLOW FORMULA FROM EBITDA FREE#

A company that wants to increase free cash flow can simply under-invest in fixed assets.

❌ Can be manipulated just like so many other accounting metrics. ❌There is no standardized calculation of Free Cash Flow so it’s important to check with your bank or investor for their definitions ❌Overstates CAPEX in the year of acquisition and understates it in subsequent years ❌Assumes all CAPEX is a required investment, despite the fact most companies have a mix of replacement and growth CAPEX > Resolves some important EBITDA flaws and accounts for both CAPEX and cash consumed by sales growth or working capital efficiency losses > Available to both capital providers and borrowers = Operating Cash Flow +/- Changes in Fixed Assets

☑️This is also the cash flow available for the payment of debt obligations (hence why it's called Unlevered Cash Flow or Free Cash Flow to the Firm FCFF). ☑️ This is the cash remaining in the business after considering cash outflows that support operations (OPEX + working capital) and maintain its capital asset base (CAPEX). 1️⃣ EBITDA is not a GAAP metric so everyone calculates it however they like. Then they try to persuade you their version is the correct one.Ģ️⃣ EBITDA implies that all net income translates into cash the same way, ignoring non cash expenses and working capital changes.ģ️⃣ EBITDA does not consider the amount of required reinvestment in fixed assets, which generally and at a minimum should match non-cash depreciation expense.Ĥ️⃣ EBITDA implies that the company will first use available cash flows to repay debt, when in fact it could distribute it all to the shareholders before any debt payments are made.ĥ️⃣ EBITDA doesn’t say anything about the quality of earnings, which could be highly concentrated, littered with one-off revenues and expenses, and overall unsustainable.īecause EBITDA is flawed, we need another metric to replace it.