EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization
EBITDA = Revenue – Costs of Goods Sold – Variable Costs – Fixed Costs (excl. depreciation and amortization of fixed assets, financial results and income taxes)
It is often used when we want a short answer to the question “How much this company is valued?” It depends on the company’s industry but a number we often multiply the EBITDA by 7 to get the Enterprise Value. This gives you:
Equity Value = Enterprise Value - Net Debt with Enterprise Value = 7 * EBITDA and Net Debt = Debt - Cash and cash equivalents
EBIT: Earnings Before Interest and Taxes
EBIT = EBITDA - Depreciation and Amortization of fixed assets
Free cash flow: Cash flow from Operations less Capital Expenditure.
It is cash flow that can be dedicated to the reimbursment of debts, paying of dividends, …
Free cash flow = EBITDA - Change in Working Capital - Income Taxes - Investments
Cash Flow: The variation of cash from one period to another, resulting from operating activities, investments and financing activities.
Cash flow = Free cash flow - financing activities (reimbursment of debts, funding, …)
Let’s see an example: