Two columns
| Item | EBITDA | FCF (Standard) |
|---|---|---|
| Starts from | EBIT | OCF |
| D&A | Added back | Already inside OCF |
| Taxes | Ignored | Already deducted |
| CapEx | Ignored | Subtracted |
| Working capital | Ignored | Subtracted (via OCF) |
| Interest | Ignored | Already inside OCF (after-tax) |
| Used in | Credit covenants, EV/EBITDA multiples | DCF, equity valuation, owner economics |
Why EBITDA breaks as a cash proxy
Capital-intensive firms with sticky CapEx and steady D&A look healthier on EBITDA than on FCF; EBITDA simply ignores the cash investment needed to keep the business running. ASC 230[ASC 230]is the discipline EBITDA users skip; FCF users do not.
Credit covenant convention
EBITDA (or a defined "Bank EBITDA") is the workhorse covenant denominator because lenders care about debt-service coverage. FCF would be cleaner but is harder to standardise across borrowers; lenders make do.
SEC C&DIs on EBITDA
EBITDA is a non-GAAP measure. SEC C&DIs[SEC C&DIs]require reconciliation to the closest GAAP measure (typically net income or operating income), and prohibit headlining EBITDA above the GAAP figure in prominence terms.