Wall Street Concept

Financeable Training · Intermediate ·💰 FinTech & AI for Finance Professionals ·3mo ago

About this lesson

⁉️If a company collects ALL of its Accounts Receivable tomorrow, what happens to EBITDA? If you know the answer, drop it in the comments ⬇️ @ Tag a friend who needs to know this Check your answer below ⬇️ ⬇️ ⬇️ ⬇️ ⬇️ ⬇️ ‼️ Answer: Nothing. EBITDA doesn’t change at all. 🤯 Explanation: Collecting cash feels like it should improve profitability. But Revenue was already recognized when the sale was made, collecting AR is just a balance sheet event (Cash ↑, AR ↓). EBITDA is an income statement metric and doesn’t move. What DOES change? Free Cash Flow. The working capital improvement boosts FCF dramatically but EBITDA stays flat. This is exactly why EBITDA is a flawed ‚cash flow proxy’ and why PE investors obsess over Free Cash Flow instead. #financecareers #InterviewPrep #EBITDA #privateequity #investmentbanking

Original Description

⁉️If a company collects ALL of its Accounts Receivable tomorrow, what happens to EBITDA? If you know the answer, drop it in the comments ⬇️ @ Tag a friend who needs to know this Check your answer below ⬇️ ⬇️ ⬇️ ⬇️ ⬇️ ⬇️ ‼️ Answer: Nothing. EBITDA doesn’t change at all. 🤯 Explanation: Collecting cash feels like it should improve profitability. But Revenue was already recognized when the sale was made, collecting AR is just a balance sheet event (Cash ↑, AR ↓). EBITDA is an income statement metric and doesn’t move. What DOES change? Free Cash Flow. The working capital improvement boosts FCF dramatically but EBITDA stays flat. This is exactly why EBITDA is a flawed ‚cash flow proxy’ and why PE investors obsess over Free Cash Flow instead. #financecareers #InterviewPrep #EBITDA #privateequity #investmentbanking

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