Hi Everybody,

I hope the prep is going well, May is approaching and the pressure rises a bit :D.

I found the following statement in a study case:

EBITDA overestimates cash flow from operations if working capital is growing.

the statement turns out to be correct but I couldnt understand the relationship between EBITDA and CFO.

HELP smiley

I got this from S2000, he said because when WC increases, there’s negative CFO associated with growth, EBITDA doesn’t capture that negative CFO.

OK, so does it mean that this is the flaw of this valuation method which is the EV/EBITDA , when there is a massive investment in working capital (or fixed capital) that causes the CFO to become negative, the EBITDA doesn’t capture it !!

Thank you.

What? Fixed capital investment is not CFO, it is CFI.