Positive EBITDA But Negative FCF? is thi ...

Positive EBITDA But Negative FCF? is this possible ?

Aug 12, 2023

πŸ“ˆ Positive EBITDA but Negative FCF? πŸ“Š

πŸ”Ή EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating performance, excluding certain non-operational expenses.

πŸ”Ή Positive EBITDA indicates that the core operations are profitable and generating revenue.

πŸ”Ή However, πŸ”΄ Negative Free Cash Flow (FCF) suggests that the company's cash outflows are exceeding its cash inflows.

πŸ”Ή This could occur due to several reasons:

πŸ”„ Heavy Depreciation/Amortization: EBITDA excludes depreciation and amortization, which could be high due to significant investments in fixed assets. Although not impacting EBITDA, these expenses reduce cash flow.

🧾 Interest Payments: EBITDA excludes interest expenses. If a company has high-interest payments, it might have a positive EBITDA but negative FCF due to the interest outflows.

βš–οΈ Working Capital Changes: A company might have growing accounts receivable or inventory, tying up cash. This is not reflected in EBITDA but affects FCF.

πŸ’Ό Capital Expenditures: High investments in property, equipment, or other long-term assets could lead to negative FCF even with positive EBITDA.

πŸ“‰ Non-Cash Expenses: EBITDA doesn't consider non-cash charges. If a company has write-offs or non-cash losses, it may impact FCF negatively.

πŸ’‘ Investments: A company might be strategically investing in growth, leading to negative FCF temporarily. EBITDA would still show operational profitability.

πŸ“Š Seasonality: EBITDA might be positive due to strong quarters, but if expenses or investments are heavily concentrated in certain periods, FCF could be negative.

πŸ”Ή In summary, while positive EBITDA generally suggests operational success, negative FCF can result from factors not accounted for in EBITDA, such as cash tied up in non-operational aspects or significant investments.

Enjoy this post?

Buy Analyst Interview a coffee

More from Analyst Interview