What is the difference between free cash flow and EBITDA?

Earnings vs cash flow (in definition)

• There is a difference between "cash (flow) " and "earnings".
  -EBITDA is closely linked to profit
  -Free cash flow (FCF) is also linked to profit. However, we are also including aspects of cost of operations and the upkeep of capital.
• The exclusion of depreciation (D of EBITDA) of the assets in EBITDA is considered in FCF, where cash (from earnings), is expended in the upkeep of assets.

Both FCF and EBITDA measures profitability However, FCF is a stricter way to judge profitability of a company as it includes more aspects of cost.

• A company can be profitable (EBITDA is positive) but FCF can be negative if operational upkeep is high. If FCF is negative, a company has to sell off noncurrent assets to raise cash to sustain the business.

Imagine a family living in a HDB. The HDB is the corporation. EBITDA is total household income less spending on food (because we need food to surivue, which is operating expense in the case of a company. FCF is the income that is left after we take into account expenses that also includes cleaning up the house (detergents, soap, cost to fix leaky pipes etc; which care costs to upkeep coprate operations). Thus the word "free" in FCF- because the household is (almost) free to spend whatever FCF, while the household still has other bills to pay from EBITDA.

Hello!

They are different ways of looking at the earnings generated by a business.

FCF is a measure as representatice of the level of unencumbered cash flow that a firm has to work with. While for EBITDA, it represents the company's earnings before taking into account expense such as depreciation and interest payment. EDITBA may be a better measure when used to compare the performance of different companies.

hope this helps!