EBITDA is an alternative indicator of cash flow in the financial statements. The indicator of CFО/ EBITDA allows determine the monetary portion of the financial result.
Alternative names of CFО/EBITDA:
What Does the Indicator of CFО / EBITDA Show?
EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) is the enterprise’s profit before deducting interests on loans, dividends, income tax and amortization. In fact, it demonstrates the result of operating activity without taking into account the structure of capital. Experts determine this indicator for a rough estimation of cash flow, excluding off-balance sheet depreciation.
The indicator also shows the cash cover operating margin before interest on dividends and loans, taxes and depreciation. It can be used in assessing the quality of profit indicators taking into account depreciation. In the world practice, EBITDA is widely used to determine the monetary part of a financial result. However, this indicator is not always enough.
Formula of CFО / EBITDA
CFO / EBITDA = Operating cash flow / EBITDA * 100%.
Normative Value of CFО / EBITDA
There is no normative value for this indicator, since it can be significantly higher depending on the life cycle of the company. For a developed enterprise, the value may even equal to 1. If the value of the indicator is substantially less than 1or equal to 1, this indicates the company’s financial results do not correspond to the real notion of the financial independence.