Why EBITDA Doesn’t Spell Cash Flow and What Does?
Speaker: Mr. Dev Strischek
Speaker Designation: Principal, Devon Risk Advisory Group
Speaker: Mr. Dev Strischek
Speaker Designation: Principal, Devon Risk Advisory Group
EBITDA is not cash flow and it can be misleading and costly to the lender in certain credit decisions.
The challenge here is to explain what we mean when we say cash flow. In recent decades bankers have seen several top contenders for the cash flow definitional sweepstakes—traditional cash flow, operating cash flow, and EBITDA. The ascendant definition has been EBITDA, largely because of its popularity with the investment community, and its use there has given it a certain cache among corporate bankers and commercial lenders.
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. The lender needs to understand those fatal flaws so that they do not jeopardize the repayment of what otherwise appears to be a strong credit.
The session includes several examples and a case study to illustrate:
Most bankers acknowledge that construction lending is riskier than other types of commercial lending:
Major Topics Covered in this webinar include:
In the world of financial analysis, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) has long been a favored metric for evaluating a company's operational performance. Its popularity stems from its simplicity and its ability to offer a snapshot of a company's profitability, independent of its capital structure and accounting practices. However, a critical aspect often overlooked is that EBITDA does not directly translate into cash flow, leading to the need for a deeper exploration of the relationship between EBITDA and true cash generation. By exploring the shortcomings of EBITDA and highlighting more reliable indicators, stakeholders can make more informed financial assessments, ultimately contributing to sound investment decisions and a better understanding of a company's financial health.
A frequent speaker, instructor, advisor, and writer on credit risk and commercial banking topics and issues, Martin J. "Dev" Strischek is the principal of Devon Risk Advisory Group based near Atlanta, Georgia. Dev advises, trains, and develops for financial organizations risk management solutions and recommendations on a range of issues and topics, e.g., credit risk management, credit culture, credit policy, credit and lending training, etc.
Besides stints at other banks in Florida, Kansas City, and Ohio, his experiences outside of banking include CFO of a Honolulu construction company, combat engineer officer in the U.S. Army, and college economics instructor in Hawaii, Missouri, and Florida. A graduate of Ohio State University and the ABA Stonier Graduate School of Banking, he earned his M.B.A. from the University of Hawaii. Mr. Strischek serves as an instructor in RMA’s Florida Commercial Lending School, the American Bankers Association's (ABA), Advanced Commercial Lending School, ABA’s Stonier Graduate School of Banking, and the Southwest Graduate School of Banking.
Mr. Strischek has written over 200 articles about credit risk management, financial analysis, and related subjects for the ABA’s Commercial Insights, the Risk Management Association’s RMA Journal, and other business professional journals. He is the author of Analyzing Construction Contractors and its related RMA workshop.
