Difference Between EBITDA and Cash flow

EBITDA vs Cash flow

EBITDA and cash flow are two terms that businessmen and financial professional use interchangeably. However, these two are not the same and gives different view on a firm’s financial position.

One of the major differences that can be seen between Cash flow and EBITDA is that the former takes into account the working capital while assessing the company’s financial position. On the other hand, this working capital is not taken into account in EBITDA.

One can come across even minute shifts in the cash flow if there is an adverse swing in the capital. On the other hand, these minute shifts are not adhered to in EBITDA. While cash flows can detect signs of poor financial management, EBITDA will not detect such warning signs.

Cash flow relates to a broad measure of cash generated by any firm. It refers to the net cash after all operations. On the contrary, EBITDA is simply a limited measure of operating income before the deduction of Interest, Taxes, Depreciation and Amortization.

Cash flow, which is annually or quarterly reported in financial reports, shows how much cash a company is generating through its operations and how it is being utilised. It can be used to determine a company’s future operations like growth opportunities, dividend payments and debt repayments. Through EBITDA, an investor or an acquirer can estimate the worth of a company. Though cash flow and EBITDA can determine the potential of a company, the former is better in determining the overall health of a company or a firm.

Summary:
1. Cash flow takes into account the working capital while assessing the company’s financial position. On the other hand, this working capital is not taken into account in EBITDA.
2. While cash flows can detect signs of poor financial management, EBITDA will not detect such warning signs.
3. Cash flow is related to a broad measure of cash generated by any company or firm. EBITDA is simply a limited measure of operating income before the deduction of Interest, Taxes, Depreciation and Amortisation.
4. Cash flow refers to the net cash after all operations.
5. Cash flow shows how much cash a company is generating through its operations and how it is being utilised. Through EBITDA, an investor or an acquirer can estimate the worth of a company.
6. Cash flow is better than EBITDA in determining the overall health of a company or a firm.

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