Reliance on EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) as a measure of cash flow is misplaced because it presumes that borrowers will pay lenders before paying their taxes, expanding their working capital assets and fixed assets to support sales growth, among other things.  Bankers and investors who rely on it as a reliable indicator of repayment ability will overestimate available cash flow and underestimate the risk of default.

This session will explain why EBITDA does not measure cash flow and what more accurate measures are available, including cash flow from operations (CFO) and free cash flow (FCF).

Why should you attend?

EBITDA is a popular measure of cash flow, but it is not accurate, and bankers and investors who rely on it as a reliable indicator of repayment ability will be deeply disappointed. This session will explain why EBITDA does not measure cash flow and what more accurate measures are available. The session also includes several examples and a case study to illustrate why EBITDA is flawed and how to apply better cash flow tools.

What you'll learn?

• Definition of EBITDA

1. Earnings before Interest, Taxes, Depreciation & Amortization

• Origins of EBITDA

1. Began with Traditional Cash Flow (TCF) =Profits + Depreciation and Amortization
2. Adding Interest and Taxes to TCF

• Problems with EBITDA

1. Assumes that borrowers will pay lenders and creditors before paying taxes and dividends
2. Assumes that sales growth doesn’t require additional working capital assets and capital assets
3. Weaknesses of EBITDA-based covenants

• Alternatives to EBITDA

1. Cash flow from Operations (CFO) per FASB 95, now ACS 230
2. Free cash flow (FCF)

Who should attend?

• Credit Analysts
• Credit Managers
• Loan review officers
• Work-out officers
• Commercial lenders
• Credit Risk Managers
• Chief Credit Officers
• Senior Lenders
• Senior Lending Officer
• Bank Director
• Chief Executive Officer
• President
• Board Chairman