Why EBITDA Doesn't Spell Cash Flow and What Does

EBITDA is a popular measure of cash flow, but it is not accurate, and bankers and investors who rely on it as a reliable indicator of repayment ability will be deeply disappointed. This session will explain why EBITDA does not measure cash flow and what more accurate measures are available. The session also includes several examples and a case study to illustrate why EBITDA is flawed and how to apply better cash flow tools.

WHY SHOULD YOU ATTEND?

Reliance on EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) as a measure of cash flow is misplaced because it presumes that borrowers will pay lenders before paying their taxes, expanding their working capital assets and fixed assets to support sales growth, among other things. Bankers and investors who rely on it as a reliable indicator of repayment ability will overestimate available cash flow and underestimate the risk of default.

This session will explain why EBITDA does not measure cash flow and what more accurate measures are available.

AREA COVERED

• Definition of EBITDA
• Origins of EBITDA—its relationship to traditional cash flow (TCF)
• Problems with EBITDA
• Alternatives to EBITDA—Operating Cash Flow and Free Cash Flow

LEARNING OBJECTIVES

• Define and explain why EBITDA is used and why it is so popular
• Explain EBITDA’s shortcomings as an accurate, reliable measure of cash flow
• Offer more accurate debt repayment measures of cash flow, including how to convert EBITDA into free cash flow for measuring debt repayment ability
• Demonstrate differences between EBITDA and free cash flow in case studies

WHO WILL BENEFIT?

• Credit Analysts
• Credit Managers
• Loan review officers
• Work-out officers
• Commercial lenders
• Credit Risk Managers
• Chief Credit Officers
• Senior Lenders
• Senior Lending Officer
• Bank Director
• Chief Executive Officer
• President
• Board Chairman