THE PLAYGROUND

The earnings & cash bridge

Same business. Different lenses.

LIVE EXPERIMENT

The earnings & cash bridge

EBITDA / free cash flow180 / 57.5

Revenue$500

1001000

Cost of sales, excluding D&A$200

0600

Other operating costs, excluding D&A$120

0400

Depreciation & amortization$40

0150

Nonoperating income$0

0100

Interest expense$10

0100

Assumed income tax rate25 %

040

Capital expenditure$60

0250

Increase in operating working capital$20

-100150

Before you move a sliderCan EBITDA rise while free cash flow falls?

EBITDA 180 − interest 10 − tax 32.5 − ΔNWC 20 − capex 60 = FCF 57.5

Revenue500

Gross profit300

Operating income140

EBIT140

EBITDA180

Net income97.5

Operating cash flow117.5

Free cash flow57.5

READ THE MECHANISM

Equipment purchases affect investing cash now. Depreciation affects earnings across its useful life. EBITDA omits capital spending, working capital, interest and tax; it is not cash available to owners.

Model assumptions & units

All amounts are hypothetical $000. D&A is shown separately and counted once. Nonoperating income is assumed to be ordinary cash income included in CFO, not an asset-sale gain; no investing gains or other noncash items are included. No tax benefit is modeled for losses. FCF here means operating cash flow less capex; other adjustments are omitted.

The earnings & cash bridge

The earnings & cash bridge

Learn the thinking behind it