You can't take EBITDA home.

You can't take EBITDA home.

 
You can't pay your Taxes with EBITDA.
You can’t buy more Inventory with EBITDA.
You can't pay for new Equipment with EBITDA.
You can't grow Sales, Marketing, R&D with EBITDA.
You can’t pay your Principal and Interest obligations with EBITDA.
 
And You can’t pay out Dividends with EBITDA.
 
Why?
 
Because EBITDA is not CASH.
 
So if you can’t use EBITDA to pay for anything, what can you reasonably do with it?
 
Not much.
 
⚫ You can mostly use it to perform trend analysis and to track company performance across periods.
 
⚫ Every other use for EBITDA requires adjustments to make it truly useful to the company:
 
☑️ Working capital adjustments
 
Because cash spent on unsold inventory, or cash not collected from credit sales is not available to the company to pay suppliers, pay taxes, or grow the business.
 
☑️ Capital asset investment adjustments
 
Because every business requires some level of investment into fixed assets, at the very least for maintenance purposes. And the cash that needs to be spent on maintaining the asset base is not available to invest in new assets, or to fund any other business objectives.
 
☑️ Cash tax payment adjustments
 
Because the cash spent on tax payments is not available to invest in growing the sales and marketing team or to pay for research that will improve the company’s technology or production processes.
 
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