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


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

In: 1

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

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.

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