In each case, it depends on the circumstances in the company, which expenditures were made. Is free cash flow higher than EBITDA?įree cash flow can be higher or lower than EBITDA. This is the case, for example, if customers pay their invoices very late (a high value for days sales outstanding), or if a lot of capital is tied up in inventory. If this value is very low, it can be an indication that the working capital is not working efficiently enough in the company. The higher this value, the more efficiently the company converts its EBITDA into cash. This ratio then indicates how efficiently a company converts its EBITDA into cash: The FCF can be put into relation with the EBITDA. In the same way, the FCF can be used to calculate the EBITDA value by simply rearranging the formula above:ĮBITDA = FCF + Interest + Taxes + Changes in working capital + capital expenditures - net borrowing Free Cash Flow to EBITDA ratio Net borrowing is also referred to as net debt and can be found on the balance sheet under "Cash from investing". Once you have the value for EBITDA, you calculate all non-cash elements from it to get the FCF:įCF = EBITDA - Interest - Taxes - Changes in working capital - capital expenditures + net borrowingĪll values can be found on the balance sheet. You can convert the free cash flow into EBITDA and vice versa. It is better to calculate cash flow separately and not equate it with EBITDA if you want to get the most accurate picture of a company. If the cash flow is only measured on the basis of the EBITDA value, there can therefore be major differences to the actual free cash flow. It follows from the definitions in the above section that EBITDA includes the cash flows of a company, but it also includes other non-cash elements. In contrast to EBITDA, only the freely available cash elements that a company still has available after deducting all expenses (taxes, interest, etc.) are shown. In free cash flow, on the other hand, all depreciation and changes in working capital and capital expenditures are added to the revenues and interest and tax payments are deducted. Furthermore, EBITDA does not include capital expenditures. Rather, they represent different ways of showing a company's earnings, which gives investors and company managers different perspectives.ĮBITDA indicates revenue before taxes, interest payments and depreciation are deducted. ![]() Is EBITDA free cash flow?ĮBITDA (earnings before interest, taxes, depreciation and amortisation) and free cash flow (FCF) are very similar, but not the same. ![]() We would like to explain why EBITDA and free cash flow are not the same and why they can differ greatly from each other. The question "What is the difference between EBITDA and free cash flow?" comes up frequently, because both figures show the earning power of a company.
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