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Key Takeaways EBITDA remains an important measure of operating performance, but it’s no longer enough now that financing is more expensive and capital is more selective.
Buyers and lenders stop asking, “How much EBITDA does the company generate?” and start asking, “How much cash actually reaches the bank account?”
Adjusted EBITDA may influence the opening valuation discussion. Free cash flow often determines how much confidence buyers have in the business — and how much they’re ultimately willing to pay.
Not long ago, almost every conversation about business value began and ended with EBITDA.
Management presentations highlighted it. Investment bankers built valuation discussions around it. Buyers compared multiples against it. Owners proudly pointed to year-over-year improvements as evidence that the business had become more valuable.
EBITDA remains an important measure of operating performance. But if there’s one lesson the private markets have reinforced over the past few years, it’s this: EBITDA is no longer enough.
When financing becomes more expensive and capital more selective, the conversation changes. Buyers and lenders stop asking, “How much EBITDA does the company generate?” and start asking, “How much cash actually reaches the bank account?”
That is where free cash flow separates itself from adjusted earnings.
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