Everyone talks about EBITDA. Banks. Investors. Private equity funds. VCs. Creditors. It’s everywhere in conversations around business performance.
But when it’s time for a real transaction—whether it’s an acquisition, an investment, or a loan approval—the focus shifts immediately to cash flow.
Because at the end of the day, no one gets paid in EBITDA. They get paid in cash.
💡 Why Cash Flow > EBITDA
For business owners, it’s easy to celebrate strong EBITDA margins. But what actually matters is how much money you take home after:
✅Taxes
✅Changes in working capital
✅Capital expenditures
✅Debt repayments
✅Dividends paid
That’s where EBITDA and true cash flow start to diverge.
🧩 Visualizing the Bridge: From EBITDA to Cash Flow
To help make this simple, I created a clear graphic showing how EBITDA gets adjusted to arrive at cash flow.
Here’s the breakdown:
✅ Start with EBITDA
✅ Adjust for:
🔹Depreciation & Amortization (non-cash, add-back)
🔹Financial Revenues & Expenses (for net profit basis)
🔹Income Taxes (deduct actual tax payments)
🔹Non-Cash Items (provisions, impairments, write-downs)
🔹Changes in Working Capital
🔹Receivables ↑ → Cash ↓
🔹Payables ↑ → Cash ↑
🔹Inventories ↑ → Cash ↓
✅ Account for Investing Activities:
🔹CapEx (cash out)
🔹Asset disposals (cash in)
✅ Account for Financing Activities:
🔹Loan proceeds (cash in)
🔹Loan repayments (cash out)
🔹Dividends paid (cash out)
📊 Key Takeaways
🔹 EBITDA is a starting point, not the destination.
🔹 Cash flow reflects the real financial health of the business.
🔹 Transactions are closed based on cash flow capacity—not EBITDA margins.
🔹 Smart owners and investors focus on cash flow drivers: working capital efficiency, CapEx discipline, debt structure, and taxation.
🎯 Personally? I Always Bet on Cash Flow.
While EBITDA gives a snapshot of profitability potential, cash flow tells the real story:
- Can this company fund its operations?
- Can it pay dividends?
- Can it finance growth without new debt?
If you can control cash flow—you can control your business destiny.
Want to Master These Skills?
In my Corporate Finance Modeling Masterclass, 3 out of 5 modules are dedicated specifically to:
- Building accurate cash flow forecasts
- Modeling EBITDA adjustments
- Understanding how investors and lenders view cash conversion
👉 Check out the program here and start building models that go beyond surface-level metrics.
🔗 Download the high-resolution PDF here
Bonus Materials
Download the high-resolution PDF here