EBITDA tells you how profitable a business looks on paper, but cash flow is what actually pays the bills. Charlie Munger called EBITDA "BS" for ignoring cash availability, and Michael Dell compared it to watching the speedometer while your gas tank empties.
Earnings before interest, taxes, depreciation, amortization, and that's what most buyers look at. You know, when they look, what's your EBITDA or what's your adjusted EBITDA? So from the financial standpoint, then there's cash flow. Well, that's how you pay your bills. You know, the old expression, cash is king. I always use these quotes that Charlie Munger, and I might not have it exactly how it said it, he used to call EBITDA. He called it BS because you can't pay your bills with EBITDA. Very true. You had Michael Dell who had an expression where he used to say he was so much watching the speedometer that they took their eyesight off the gas meter and they ran out of gas, which is the cash. So you have to have a balance between the both of them and how they both work.
How Can You Maximize Your Business Value Before Selling? with Randy Katz Video
