Can Commercial Bankers Trust Reported EBITDA in Manufacturing Companies?
Direct Answer Not always. EBITDA is one of the most important metrics used in commercial lending, but it should never be accepted without understanding the operational and accounting systems that produce it. In manufacturing companies, EBITDA can be influenced by inventory valuation methods, standard costing assumptions, production reporting accuracy, inventory growth, absorption accounting, and working […]
Why Can EBITDA Improve While Cash Flow Gets Worse in Manufacturing?
Direct Answer Yes, EBITDA can improve while cash flow deteriorates in manufacturing companies. This typically occurs when inventory, accounts receivable, or working capital requirements grow faster than cash generation. In these situations, reported profitability may improve while liquidity weakens. For commercial bankers, this distinction is critical because loans are repaid with cash flow, not EBITDA. […]