š EBITDA and Operating Cash Flow: okay, not the same, but when the same?
š EBITDA and š° Operating Cash Flow are two financial metrics used to evaluate a company's performance considering the ordinary and main business activityšš¢š¼
šš¦šØš¤ in a fairy world they can be equal only when there are no changes in working capital (along with other conditions);
š However, in most cases, they are not identical because of actual changes in working capital and other non-operating items;
ā It is now known, in fact, that their values are not always equal: both are used to measure the profit generated by operating activities, without factoring in other accounting stuff such as depreciation, etc. However, let's imagine a scenario where paradoxically they are equal, and let's explore it furtherā“
šEBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization
šOperating Cash Flow = cash generated or used by a company's normal business operations within a given period, so it excludes financing and investing activities and includes adjustments for non-cash items
šTHEY ARE ā 2 different financial metrics used to evaluate a company's financial performance;
šļøšāØOne scenario where EBITDA may be equal to operating cash flow is when a company has no changes in working capitalšš¦ - which means that the amount of cash received from customers is equal to the amount of cash paid to suppliers, employees and other services needed and purchased by the companyā in this scenario, the net change in working capital would be zero, current assets would equal current liabilities... and the operating cash flow would be equal to āļø EBITDAāļøš²
š Other conditions to have this equivalence are: absence of payments of passive interests or receipts of active interests + absence of payments of taxes and fees + absence of other uncommon and non-standard assets and liabilities;
š However, in most cases, EBITDA and operating cash flow will not be equal, as there are usually changes in working capital and other non-operating items that affect the cash flow.
~āāā At best, EBITDA can be a good approximation of operating cash flow
