The term “cash flow” is often used interchangeably with “EGBITDA”. If you’re wondering why “cash flow” is so important, read on. A cash flow can be defined as the money that is being paid into our bank account to satisfy our obligations.
EBITDA is net income before interest and taxes. A quick google search brings up this excellent article discussing the differences between the two.
EBITDA is calculated in a very similar way to cash flow, with one difference: Interest and Taxes. As stated before, cash flow is calculated based on what we owe to the bank, whereas EBITDA is calculated on what we actually have in our bank account. The difference between the two is huge, so I’m not sure if I would recommend using EBITDA in a business. But for personal finances, cash flow is probably the more practical method.
Cash flow is a more “hands-off” method of managing your money, whereas EBITDA means the financial health of your business is more closely tied to your personal finances. EBITDA is usually used by companies that are growing, having a lot of debt, and are trying to pay down debt. Cash flow is a more “hands-on” method of managing your business, whereas EBITDA is a more “hands-off” method of managing your business.
What makes cash flow easier? It’s just faster. EBITDA takes a lot longer to get paid, even if it does increase your income. You don’t think about paying the bills and then wondering how you made some money? But with cash flow, you don’t have to worry about spending money that you don’t have. You can just make some money and then spend it.
EBITDA is a useful measure for businesses that are getting into the long-term debt business, but for most businesses, it is a difficult tool to use. A company that wants to use the cash flow method will, in order to calculate their EBITDA, start with a full year of their business’ cash flow.
Not to mention, the fact that a business that gets into the long-term debt business is also paying a tax rate that is much higher than what other businesses in their industry are paying (like, at least 2.5%). It is a difficult calculation to use because not only does this tax rate apply to the business not being in the long-term debt business, but it also applies to other businesses in the same industry.
You could always think of the cash flow as a “product” rather than a “service”, and that would be a good thing. In the case of a business that has already spent a year and a half in a company that has spent the last half of it, it would be a good thing. But this is very easy. You have to know the difference between a service and product.
I think this is a great example of a business that has been doing it wrong for too long and that it’s finally becoming apparent something needs to be done. But that something has to be on a business model that allows its customers to receive a return on their investment.
I think this is a great example of a business that has been doing it wrong for too long and that its finally becoming apparent something needs to be done. But that something has to be on a business model that allows its customers to receive a return on their investment.