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Can anybody tell me exactly how to figure out EBITDA and EBIT? Is EBITDA the same as Operating Income? IS EBIT = EBITDA - Deprciation and Amortization?
What is the relationship between Operating Income and Operating Cash Flow (not Cash Flow from Operations)

The reason I ask is because I am continously reading about companies doing M&A and LBO's and I wanted to get some clarification. For example, when companies are figuring out cash flow, are they using EBITDA or EBITDA - Capital Expenditures or EBITDA - Capital Expenditures - additions to Net Working Capital.

Any thoughts??
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Wow, so many questions. I'll answer the ones I think I know, and leave the rest up to the rest of the board...

Can anybody tell me exactly how to figure out EBITDA and EBIT?
EBITDA= net profits plus interest, Taxes, Depreciation, and Amortization.

EBIT= Net profits plus Interest and Taxes.

Is EBITDA the same as Operating Income?
Not necessarily. I believe EBITDA would include investment income, which shouldn't be included in Operating Income. There may be other differences.

IS EBIT = EBITDA - Deprciation and
Amortization?


Yep.

What is the relationship between Operating Income and Operating Cash Flow (not Cash Flow from Operations)

I belive that Operating Cash Flow and Cash Flow from Operations are the same thing. Anyway, I don't think there is any direct, simple relationship between Operating Income and Operating cash flow.

Anyway, as for what analysts use to determine cash flow, there are different ways of looking at cash flow. EBITDA is a popular, simple proxy, but other analysts prefer more complicated calculations that capture the number better. I'll leave that up to the better versed among us.

Bob

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TMFBob,

this quote from March of this year EBITDA is Earnings before INTEREST and
taxes, D&A.
-ebitda123, seems different. Which is correct? I believed that the "B" stood for "before", now there is a certain level of confusion.

Bruce
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Dear nanhalia,

Just a couple of comments in addition to TMFBobdog:

One problem with "cash flow" is that there seems to be many different definitions for it. I've heard some folks call "EBIDTA = cash flow". The EVA guys talk about "free cash flow = NOPAT (net operating profits after taxes) - invested capital", where invested capital = cap ex + additions to net working capital.

There are several models out there to try to figure out what true "earning ability" of a company is. That should be the goal more than any formula.

BTW, what sorts of books are you reading? Perhaps if you post some formulas we could be of more help.

Best,

Lleweilun Smith
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Dear herd,

I agree with you.

EBITDA = earnings before interest, taxes, depreciation and amortization.

Lleweilun Smith
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Bruce,

Yeah, that's right. Earnings Before Interest Taxes, Depreciation, and Amortization. I was focusing on how to calculate it without paying enough attention to the actual acronym. That's what happens when I post things in too much of a hurry.

Sorry for the confusion there.

So, to clarify what I said earlier, to find EBITDA, you take Earnings and add back Interest, Taxes, Depreciation and Amortization.

For that matter, EBIT (Earnings Before Interest and Taxes) would be Earnings plus Interest and Taxes.

Bob
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Thanks Bob,

In the past I have been bitten by having learned something incorrect that went undiscovered because I just assumed... Confirmation and double checking seem to pay off for me in confidence, and ocassionally, it saves me some embarrassment---and $money$!

This interactive learning experience, as provided by The Motley Fool, could be a model for public schools. Perhaps it should be. The "mug and jug" system certainly hasn't been an unalloyed success.

Foolin' in the Ozarks,

Bruce
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