In order to remain on top of your business’s finances, you need to master some basic concepts such as cash flow and EBITDA. If you’re not clear on the meaning of these terms and the differences between them, you’ve come to the right place. In today’s blog, we tell you everything you need to know about cash flow and EBITDA.
What Is Cash Flow?
Cash flow is the amount of cash moving in and out of a business over a period of time.
This serves as a measure of a company’s ability to pay its bills and make investments.
Cash flow can be positive when you’re bringing in more money than you’re paying out, or negative when you’re paying out more than you’re bringing in.
No matter what your industry is, a strong cash flow is crucial for a business to survive and grow.
Cash Flow and Factoring of Accounts Receivable
An easy way to improve your cash flow is by taking advantage of Factoring of Accounts Receivable.
Under a factoring agreement, you sell your unpaid invoices to a third party known as Factor. The Factor pays you upfront, so you don’t have to wait 30 to 90 days for your customers to pay you, and then collects the invoices in exchange for a small fee.
This accelerates your cash flow, giving you easy access to the capital you need to meet recurring expenses or take advantage of business opportunities.
What Is EBITDA?
The term EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
As the name suggests, EBITDA is obtained by adding interest, tax, depreciation, and amortization expenses to net income.
This metric provides a good way to look at a company’s profitability because it removes factors that can vary from business to business, such as interest expenses and taxes.
Are Cash Flow and EBITDA the same?
As you can see from the descriptions above, cash flow and EBITDA are not the same.
To begin with, EBITDA focuses on profit, while cash flow focuses on liquidity (in other words, the amount of cash a company has readily available).
EBITDA measures operating profitability, but it doesn’t take into account changes in working capital. That means that EBITDA doesn’t show how much cash is coming in or going out of the business.
Cash flow, on the other hand, measures the actual cash moving in and out of the business.
Wrapping It Up
In summary, cash flow and EBITDA are definitely not the same. Cash flow measures the movement of cash in and out of a business, while EBITDA is an indicator of operating profitability.
However, both cash flow and EBITDA are important for a business, as they provide different insights into a company’s financial health. Keeping track of both can help you make more informed decisions and achieve your goals.
To learn how to strengthen your cash flow, check out our previous blogs, “How Does a Strong Cash Flow Benefit Your Business?” and “Cash Flow vs Income: What Is the Difference?”
ACS Factors: We Turn Your Invoices Into Cash
We are a Factoring company located in Upland, California, with many clients nationwide in the distribution and logistics corridor which includes Ontario, Riverside, Fontana, Jurupa Valley, and Moreno Valley.
Get in touch by email (info@acsfactors.com) telephone (909-946-5599), or through our social media accounts on Facebook, Twitter, and YouTube.
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