Eli5 – What is the difference between a businesses annual cash flow vs. EBITDA?

Question

I am looking to buy an existing business. Cash flow is $60k but EBITDA is $40k. What’s the difference?

In: 1

Answer 1

In this case you’d have to look at the cash flow statement to determine why cash flow is higher than EBITDA, could be loan proceeds, a decrease in accounts receivable from beginning to end of year, an increase in a/p. In other words balance sheet changes that aren’t reflected in earnings.

Answer 2

EBITDA is earnings before interest, taxes, depreciation and amortization, it’s really a measure of a company’s ability to service debt.

Answer 3

We’d have to understand which formulation of cash flow is being referenced. Free cash flow? Cash Flow from Operations? Unlevered Free Cash Flow?