{"id":300881,"date":"2026-02-09T11:30:29","date_gmt":"2026-02-08T23:30:29","guid":{"rendered":"https:\/\/www.reckon.com\/au\/?post_type=sbh&#038;p=300881"},"modified":"2026-02-06T15:10:43","modified_gmt":"2026-02-06T03:10:43","slug":"ebitda-vs-cash-flow","status":"publish","type":"sbh","link":"https:\/\/www.reckon.com\/au\/small-business-resources\/cash-flow\/ebitda-vs-cash-flow\/","title":{"rendered":"EBITDA vs Cash Flow: Key Differences, Formulas and Examples"},"content":{"rendered":"<p>[et_pb_section fb_built=&#8221;1&#8243; custom_padding_last_edited=&#8221;on|phone&#8221; _builder_version=&#8221;4.23&#8243; custom_padding_tablet=&#8221;&#8221; custom_padding_phone=&#8221;0px||||false|false&#8221; da_disable_devices=&#8221;off|off|off&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221; da_is_popup=&#8221;off&#8221; da_exit_intent=&#8221;off&#8221; da_has_close=&#8221;on&#8221; da_alt_close=&#8221;off&#8221; da_dark_close=&#8221;off&#8221; da_not_modal=&#8221;on&#8221; da_is_singular=&#8221;off&#8221; da_with_loader=&#8221;off&#8221; da_has_shadow=&#8221;on&#8221;][et_pb_row column_structure=&#8221;1_3,2_3&#8243; _builder_version=&#8221;4.23&#8243; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; width=&#8221;100%&#8221; custom_padding=&#8221;||0px||false|false&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;1_3&#8243; module_class=&#8221;table-contents&#8221; _builder_version=&#8221;4.23&#8243; background_color=&#8221;#f3f2f6&#8243; custom_padding=&#8221;25px||25px||true|false&#8221; sticky_position=&#8221;top&#8221; sticky_limit_bottom=&#8221;section&#8221; sticky_position_tablet=&#8221;top&#8221; sticky_position_phone=&#8221;none&#8221; sticky_position_last_edited=&#8221;on|desktop&#8221; border_radii=&#8221;on|24px|24px|24px|24px&#8221; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text _builder_version=&#8221;4.23&#8243; text_font=&#8221;||||||||&#8221; global_colors_info=&#8221;{}&#8221; background__hover_enabled=&#8221;on|desktop&#8221;][\/et_pb_text][\/et_pb_column][et_pb_column type=&#8221;2_3&#8243; _builder_version=&#8221;4.16&#8243; custom_padding=&#8221;|||&#8221; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221;][et_pb_text admin_label=&#8221;Intro&#8221; _builder_version=&#8221;4.27.5&#8243; header_2_font_size=&#8221;32px&#8221; hover_enabled=&#8221;0&#8243; header_2_font_size_tablet=&#8221;30px&#8221; header_2_font_size_phone=&#8221;26px&#8221; header_2_font_size_last_edited=&#8221;on|tablet&#8221; global_colors_info=&#8221;{}&#8221; sticky_enabled=&#8221;0&#8243;]<\/p>\n<p>There are times when a business&#8217;s financial statements show profitability, while in reality, bank accounts are low or empty. This is exactly why people compare EBITDA vs cash flow.<\/p>\n<p>At the top level, EBITDA is a measure of operating performance \u2013 i.e. how profitable your core business operations are \u2013 while cash flow is about actual cash moving in and out of the business.<\/p>\n<p>Let\u2019s unpack the main differences and a couple of handy examples you can use in real-world cash flow analysis.<\/p>\n<h2>What is EBITDA?<\/h2>\n<p>EBITDA stands for earnings before interest, taxes, depreciation, and amortisation. It\u2019s a way of estimating your company\u2019s operational profitability from its main operations by stripping out:<\/p>\n<ul>\n<li>Interest expenses, which depend on your capital structure and net debt.<\/li>\n<li><a href=\"https:\/\/www.reckon.com\/au\/small-business-resources\/tax\/tax-rates\/\">Taxes<\/a>, which depend on tax strategies and timing.<\/li>\n<li>Depreciation and amortisation, as well as other non-cash items such as amortisation expenses and, depending on some businesses, stock-based compensation.<\/li>\n<\/ul>\n<p>Because it focuses on core business activities, EBITDA can be used to compare companies with different capital structures (e.g. one business has big loans, another doesn\u2019t) and different accounting or tax settings. That\u2019s why it shows up in bank covenants (agreement conditions) and credit agreements.<\/p>\n<p>But here\u2019s the catch: EBITDA is not cash. It\u2019s a performance metric, not a money-in-the-bank metric.<\/p>\n<h2>EBITDA formula and how to calculate it<\/h2>\n<p>There are a few ways to calculate EBITDA, depending on what you have in front of you and how your accounting practices present the numbers under generally accepted accounting principles. A popular version is:<\/p>\n<p style=\"text-align: center;\"><em><strong>EBITDA = Net income + Interest expense + Taxes + Depreciation and amortisation<\/strong><\/em><\/p>\n<p>That\u2019s essentially adjusting net income back up by adding back costs that aren\u2019t part of the day-to-day business trading performance. Another option is:<\/p>\n<p style=\"text-align: center;\"><em><strong>EBITDA = Operating profit (or operating income) + Depreciation and amortisation<\/strong><\/em><\/p>\n<p>Doing it this way starts from operating profit on the income statement, then adds back D&amp;A.<\/p>\n<p>EBITDA can also be presented with \u2018add-backs\u2019 for some non-operational factors (e.g. one-off restructure costs). Be careful here, though, because the more add-backs you use, the more EBITDA becomes a product of financing and accounting decisions rather than a proper view of performance.<\/p>\n<h2>\u00a0<\/h2>\n<h2>What is cash flow and where can you find it?<\/h2>\n<p>[\/et_pb_text][et_pb_image src=&#8221;https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2026\/01\/Cash-flow-applications.png&#8221; alt=&#8221;Different cash flow applications, operating, investing, and financing&#8221; title_text=&#8221;Cash Flow Applications&#8221; align=&#8221;center&#8221; _builder_version=&#8221;4.27.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_image][et_pb_text _builder_version=&#8221;4.27.5&#8243; _module_preset=&#8221;default&#8221; hover_enabled=&#8221;0&#8243; global_colors_info=&#8221;{}&#8221; sticky_enabled=&#8221;0&#8243;]<\/p>\n<p><a href=\"https:\/\/www.reckon.com\/au\/small-business-resources\/cash-flow\/cash-flow-types\/\">Cash flow<\/a> is the money that actually moves through your business over a set period \u2013 the cash generated and the cash outflows you\u2019ve paid. The best place to see it is the cash flow statement, and most statements will break down cash movements into three buckets:<\/p>\n<ul>\n<li><strong>Operating cash flow:<\/strong> Cash tied to normal trading in your company\u2019s operations.<\/li>\n<li><strong>Investing cash flow:<\/strong> Cash spent on or received from capital investments, buying\/selling equipment, selling assets, etc.<\/li>\n<li><strong>Financing cash flow:<\/strong> Cash from loans, equity injections and cash used for loan repayments and dividend payments.<\/li>\n<\/ul>\n<p>A business can show positive cash flow overall and still be under pressure if its operating cash flow is weak, or if it has chunky short-term cash flow demands coming up.<\/p>\n<h2>Operating cash flow versus free cash flow<\/h2>\n<p>Two cash flow numbers you\u2019ll hear a lot in cash flow vs profitability discussions are:<\/p>\n<ul>\n<li><strong>Operating cash flow:<\/strong> Cash generated by the core business operations after considering working capital movements (i.e. accounts receivable and accounts payable) and other operating payments.<\/li>\n<li><strong>Free cash flow (FCF):<\/strong> The cash left after the business funds the capital spend it needs to keep operating and grow.<\/li>\n<\/ul>\n<p>A basic free cash flow formula is:<\/p>\n<p style=\"text-align: center;\"><em><strong>Free cash flow = operating cash flow \u2013 capital expenditures<\/strong><\/em><\/p>\n<p>In other words, you subtract <a href=\"https:\/\/www.reckon.com\/au\/glossary\/capital-expenditure\/\">capital expenditures<\/a> (capex) from the cash your business generates through trading. Why does this matter? Because capex is the real-world \u2018cash drain\u2019 that EBITDA doesn\u2019t capture. Depreciation is an accounting expense, whereas capex is a real payment.<\/p>\n<h2>Differences between EBITDA and cash flow<\/h2>\n<p>EBITDA and cash flow tend to move in the same direction over time, but they can diverge in the short term. Here\u2019s what usually drives that gap:<\/p>\n<h4>1. EBITDA looks at operating performance, cash flow at liquidity<\/h4>\n<p>EBITDA focuses on operating performance and how the business trades. Cash flow looks at whether you can actually pay bills and stay steady through economic downturns.<\/p>\n<h4>2. EBITDA ignores working capital, cash flow doesn\u2019t<\/h4>\n<p>Cash flow is heavily impacted by working capital movements. If customers pay late, accounts receivable rises and cash can fall even if profit looks fine. If you wait to pay suppliers, accounts payable rises and cash might look better (but only temporarily).<\/p>\n<h4>3. EBITDA ignores capex, free cash flow doesn\u2019t<\/h4>\n<p>EBITDA doesn\u2019t care whether you spent $2,000 or $200,000 on equipment. But your cash does. Free cash flow is where capital expenditures and capital investments hit home.<\/p>\n<h4>4. Capital structure matters more for cash flow<\/h4>\n<p>Two businesses with the same EBITDA can have very different cash outcomes depending on net debt, debt repayments, interest costs, and other financing activities. This is the capital structure effect in the real world.<\/p>\n<h2>Examples of when EBITDA and cash flow tell different stories<\/h2>\n<p>Here are a couple of examples that will help you understand the difference between EBITDA and cash flow:<\/p>\n<h3>Example 1: Strong EBITDA, negative cash flow<\/h3>\n<p>A small services business has the following for the month:<\/p>\n<ul>\n<li>Sales: $120,000<\/li>\n<li>Operating expenses (wages, rent, software, etc.): $90,000<\/li>\n<li>Depreciation: $5,000<\/li>\n<li>Interest: $2,000<\/li>\n<li>Tax (accrued): $3,000<\/li>\n<\/ul>\n<p>On the income statement, you might see:<\/p>\n<ul>\n<li>Operating income: $30,000<\/li>\n<li>Add back depreciation ($5,000) to get EBITDA equalling $35,000<\/li>\n<\/ul>\n<p>So far, so good \u2013 strong company\u2019s earnings and solid operational performance. But now look at the cash reality:<\/p>\n<ul>\n<li>Customers were slow to pay and accounts receivable increased by $25,000<\/li>\n<li>You paid down a business loan of $8,000<\/li>\n<li>You bought equipment worth $12,000<\/li>\n<\/ul>\n<p>The cash view now looks like:<\/p>\n<ul>\n<li>Start with cash flow from operations: EBITDA $35,000<\/li>\n<li>Adjust for working capital: minus $25,000 (receivables)<\/li>\n<li>Other operating cash items (say tax actually paid this month is $0 because it\u2019s not due yet)<\/li>\n<\/ul>\n<p>Operating cash flow is roughly $10,000. Then subtract capital expenditures of $12,000. Free cash flow is now a negative cash flow of about \u2013$2,000. That\u2019s the classic \u2018profitable but cash-tight\u2019 situation. Your company\u2019s ability to meet near-term commitments can be under pressure even with healthy EBITDA.<\/p>\n<h3>Example 2: Weak EBITDA, positive cash flow<\/h3>\n<p>Now imagine a retail business having a tough quarter:<\/p>\n<ul>\n<li>EBITDA for the quarter: $5,000<\/li>\n<\/ul>\n<p>But the <a href=\"https:\/\/www.reckon.com\/nz\/small-business-resources\/business-financing\/cash-flow-management\/\">cash flow statement<\/a> shows positive net cash flow because:<\/p>\n<ul>\n<li>It sold assets and brought in $30,000 from an investing inflow<\/li>\n<li>It stretched supplier payments, increasing accounts payable by $10,000<\/li>\n<\/ul>\n<p>Overall, cash looks strong \u2013 but that\u2019s not the same as sustainable trading performance. Selling assets can\u2019t fund your operations forever, and delaying payments can cause future financial challenges.<\/p>\n<h2>When to use EBITDA and cash flow for your business<\/h2>\n<p>Use EBITDA when you want to understand pure operational profitability and whether you\u2019re getting better operational efficiency over time.<\/p>\n<p>Use cash flow when you want to understand whether you have enough cash to pay wages, suppliers, tax, etc. and whether growth is actually generating cash or just building accounts receivable.<\/p>\n<p>The reality is that most smart operators track both. EBITDA helps you see whether the engine is working. Cash flow shows whether there\u2019s petrol in the tank.<\/p>\n<p>[\/et_pb_text][ba_social_share icon_bg=&#8221;#03002e&#8221; icon_padding=&#8221;10px|12px|10px|12px|true|true&#8221; layout=&#8221;classic&#8221; show_text=&#8221;off&#8221; btn_padding=&#8221;0px|0px|0px|0px|false|false&#8221; btn_bg_color=&#8221;RGBA(255,255,255,0)&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; custom_margin=&#8221;50px||||false|false&#8221; custom_padding=&#8221;25px||||false|false&#8221; custom_css_before=&#8221; content: %22SHARE THIS%22;|| font-size: 16px;|| font-weight: 700;|| line-height: 22px;|| letter-spacing: 0em;|| text-align: center;|| color: #ff5447;|| margin-bottom: 10px;|| display: inline-flex;|| position: absolute;|| margin-top: 10px;&#8221; border_width_top_main=&#8221;1px&#8221; border_color_top_main=&#8221;#e4e4e4&#8243; border_radii_icon=&#8221;on|5px|5px|5px|5px&#8221; global_colors_info=&#8221;{}&#8221; custom_css_before_last_edited=&#8221;off|desktop&#8221;][ba_social_share_child _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;facebook&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;linkedin&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][ba_social_share_child network_type=&#8221;email&#8221; _builder_version=&#8221;4.23&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/ba_social_share_child][\/ba_social_share][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Understand the difference between cash flow and EBITDA, why each matters, and how to use 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