EBITDA vs Net Income Vs Free Cash Flow Explained Simply

[@deepak_EPS]

Your thumbnail already explain it very clearly Thanks bro

[@BrianFeroldiYT]

LOL

[@BG-mw5pt]

thumbnail should have been like in the shining bathroom scene.

[@dfelici1]

Guys I'm a commercial banking credit professional with over 30 years of lending experience spanning the big three major banks. I decided to watch this video and was prepare to be underwhelmed, BUT, dammit you actually nailed it. You did a solid job explaining the basic concepts and then built up from that foundation. The side by side comparisons of each method were helpful for those watching to follow and better understand how these measure tell the analyst different stories. Bravo well done!

[@BrianFeroldiYT]

Wow - what a compliment!

[@oferlanger]

WOW! This explanation was so clear and concise. Thank you so much for working on these videos. They are making important economic concepts accessible to such a wide audience that is eager for this knowledge.

[@BrianFeroldiYT]

Glad it was useful!

[@Almost_Made_It]

Clicked because of the hilarious thumbnail

[@EarthwithTom]

Great thumbnail and content to back it up!

[@BrianFeroldiYT]

Appreciate it!

[@im_83n]

Thank you. I am a finance student and accounting is one of my... areas with room for improvement. This helped explain a lot.

[@BrianFeroldiYT]

Glad it was helpful!

[@MasterSpreadsheets]

Very interesting all the different metrics you can use to understand a company's value

[@BrianFeroldiYT]

It really is

[@unclecode]

I wish I could watch this back in 2015 when I started my business, and all these terms were like a real pain in my butt. Every meeting with accountants was a hell, and I had to search over the internet for self-learning... Although right now I can watch this in 1.5x and enjoy it, but as a self-taught finance person, I'm telling you this video is brilliant for those who have a beginner level of understanding, but not for literally zero beginners.

[@BrianFeroldiYT]

I also wish I knew this 10 years ago

[@stratokan]

Great content! Clearer than my financial statement class haha

[@BrianFeroldiYT]

Glad to hear it!

[@dontplayformenero]

Brilliant Brian. This is genuinely some of the most useful content on all of KZbin. Thanks for the video!

[@BrianFeroldiYT]

Thank you! More videos to come every Saturday

[@franciscosobrinho8471]

Great class ! I d only change ebitda explanation by checking what is included under “others” ….

[@donkemp8151]

I understand the video is focused on different ways of reporting financial performance. The first thing that caught my eye was the disparity it net income in 2021 vs 2023 - year to year comparison for trends and anomalies is also important.

[@BrianFeroldiYT]

Yup

[@DroLizard]

LOVE THE NAME OF THE CHANNEL! Good job buddy! We need more people like you

[@BrianFeroldiYT]

Thank you!

[@АртемТкачев-э8и]

CLEAR AND EASY TO UNDERSTAND EXPLANATIONS. THANK YOU!!! SUBSCRIBED.

[@BrianFeroldiYT]

Thanks for the sub!

[@mauricehall8147]

Thanks! The breakdown was digestible. Good job!

[@BrianFeroldiYT]

Glad you enjoyed it!

[@randrothify]

Free cash flow is king. EBITDA is great but for companies with very high non-discretionary capex requirements or R&D it doesn’t work as well because if they are forced to keep investing in physical plant or research to keep their businesses operating, then the the DA is often largely offset by cash committed to maintaining the level of spend placed in facilities and R&D.

[@BrianFeroldiYT]

Bingo

[@thedalillama]

As someone that has worked in global corporate finance (M&A) for 30 years, I take issue with your assessment that FCF is "King". As an analyst, I'd say FCF is "unfortunately and detrimentally ignored". So, FCF is probably a Prince or Marquess. :p

[@kevoreilly6557]

A patient that needs continuous blood transfusions is already dead, unless it’s because there is an operation ahead. It’s meant to be a short term solution. Same with EBITA

[@nogueiranatan]

Hey Brian, thanks a lot for the video! I work in banking and this is truly helpful. A question: why are we only looking at capital expenditures to subtract from Cash from Operations? How I used to look at it, I was taking into account the net flows from investing and servicing of debt in financing activities. In other words, looking at the Net change in cash and cash equivalents.

[@BrianFeroldiYT]

Hi! There are lots of ways to calculate Free Cash Flow. The one I presented in the video is the simplest and most widely used.

[@RohitRaj-on6hl]

My teacher who teach me finance always says if you only one thing to believe then believe in cash flow...

[@BrianFeroldiYT]

Accurate

[@CaptainJeff2000]

This is an EXCELLENT overview video- thank you! (coming from a CEO)

[@BrianFeroldiYT]

Wow, thanks!

[@artoanoush9239]

EXCELLENT.

[@BrianFeroldiYT]

Many thanks!

[@ЕкатеринаГарнагина]

Your videos are wonderful! Thanks a lot

[@BrianFeroldiYT]

Glad you like them!

[@vcab6875]

Outstanding concise discussion.

[@BrianFeroldiYT]

Glad to hear that

[@pilotpawanc]

Beautifully articulated...

[@BrianFeroldiYT]

Thank you kindly!

[@lsmtz]

The best thumbnail in the human history!😂

[@kevoreilly6557]

Just watch Charlie used to say about EBITA … the “this is how much I weigh if I didn’t eat fatty foods” measurement in finance

[@BrianFeroldiYT]

Haven’t heard that before!

[@soylentpink7845]

Very nice video! Very well explained.

[@BrianFeroldiYT]

Thank you very much!

[@LivWonce]

Very nice work. Thank you.

[@BrianFeroldiYT]

Many thanks!

[@RafaelSilvaGrisa]

great video, clear and direct to the point.

[@BrianFeroldiYT]

Glad you enjoyed it!

[@blackriver4288]

Thanks you, very clear & simple !

[@BrianFeroldiYT]

Glad it helped!

[@helloken]

Great explanation, thank you!

[@BrianFeroldiYT]

You are welcome!

[@realgivans683]

Is the accounting method for the three, mandatory for all companies or just this example ?

[@BrianFeroldiYT]

It’s mandatory for all publicly traded US companies

[@williamjinrobin5398]

Very clear thank you. I just have a question regarding the EBITDA calculation : Since we have a + 1,424 million $ interest income, shouldn't we subtract this amount instead of adding it back ? thankss

[@BrianFeroldiYT]

You sure can

[@StockSpotlightPodcast]

Another banger!

[@BrianFeroldiYT]

Thanks! Putting lots of work into these videos!

[@InvestingWithAdamK]

Really really great video. Thank you.

[@BrianFeroldiYT]

Thanks!

[@Kannot2023]

Thank you for clarification

[@BrianFeroldiYT]

Glad it was helpful!

[@Chris_Fx_Fi]

Thank you very much

[@BrianFeroldiYT]

You are welcome

[@famillebourezak9662]

Yo Brian, thank you so much !

[@BrianFeroldiYT]

My pleasure!

[@famillebourezak9662]

@@BrianFeroldiYT this is really helpful ! Great job !

[@johnmcquaid7524]

Hilarious thumbnail. Very good examples.

[@BrianFeroldiYT]

:)

[@axxeny]

It's wild that the inflation of the unit of account (USD in this case) isn't accounted for anywhere

[@rider_24]

This channel is underrated, need a billion subscribers ASAP. this chanel was created in 2020 but KZbin recommended it to me on 2024😢 I wish it was sooner.

[@BrianFeroldiYT]

Wow -- thanks for that :)

[@Richie_P]

Say I wanted to get an accounting degree. Would I study this information in fundamental, intermediate, or advanced accounting?

[@BrianFeroldiYT]

Yes to all 3

[@boothie15]

Great video. Would the Amortization charge not be the Debt Repaid under Financing Activities on the Cashflow Statement?

[@BrianFeroldiYT]

Thanks! It **could** be as the gradually paying down of debt is "Amortization". However, this is only if the interest payments include priniciple. That's not how most corporate debt works. Most are interest-only payments.

[@Darin.Pearson]

Why is Iggy = FCF?

[@DrRussell]

Bro. You had me at simpular.

[@whiskeytango9769]

EBITDA does not measure profit at all. It measures earnings before you have to pay out a bunch of costs that might eat up all the cashflow...and no profits.

[@BrianFeroldiYT]

Correct

[@kaviarasu1836]

How depreciation and amortization will eat cash flow 🤔

[@forrestgreen9369]

As Charlie Munger once said, "EBITDA is bullsh*t earnings".

[@yutongxie316]

This cannot be more wrong. EBITDA is after all the operations accounting expenses but before depreciation and Amortization. The formula in the video can be misleading. A big portion of FCF is actually EBITDA.

[@whiskeytango9769]

@@yutongxie316 Interest, and Taxes...don't forget those as well.

[@craigbrowne5806]

FCF is best… and Price/FCF is the best indicator of under/overvalue.

[@BrianFeroldiYT]

It’s one of my favorites

[@jeandubois8810]

great. thanks. i learned something.

[@BrianFeroldiYT]

Glad it was helpful!

[@cato451]

Very good explanation.

[@BrianFeroldiYT]

Glad it was helpful!

[@highflyingstone2616]

Great explanation.Thank you very much.

[@BrianFeroldiYT]

Glad it was helpful!

[@rajeshkumarm5610]

Subscriber from India

[@BrianFeroldiYT]

Welcome!

[@megamaster6]

Great video, outstanding explanation 🤌🏼

[@BrianFeroldiYT]

Thanks for watching!

[@adsasdqw-fh5cp]

saw thumbnail, instant sub

[@BrianFeroldiYT]

LOL

[@cobynette6738]

Great information! Thanks for spreading your knowledge for free to us. Curious, did you go to business school to learn all this?

[@BrianFeroldiYT]

I learned it in business school and then forgot it. Then I relearned it on my own.

[@kritokoye569]

how I can get Ebook for free I try the link but it want me to pay for full vision i just need the free vision

[@BrianFeroldiYT]

Hi! There are 2 versions of the ebook: free & paid. Click this link: longtermmindset.co/fssebook - when you fill in your email, i'll send you a copy of the free ebook with 8 infographics as mentioned in the video. You can then upgrade to the full ebook (50 images) if you'd like.

[@conrad4667]

2:38 If the red bars were all shorter, it would have made more sense compared to 1:57.

[@YTgroup-g8w]

Nice vid

[@BrianFeroldiYT]

Thanks for watching

[@KalleKalas-r1v]

1:43 Nice Volvo C30

[@lordvader6072]

Pretty sure most of the viewers clicked the video because of valuable intel ( Sydney Sweeney )😂

[@lanic3869]

Well EBITDA is a pretty hot topic.

[@tempy2440]

What was the thumbnail?

[@lordvader6072]

Young Sydney sweeney who is hot and the AI generated old lady who looked like Sydney sweeney

[@Nicolau29]

hahaha ... it was brilliant 😅 .

[@Tina.n.Rigden]

@@lordvader6072Haha. That old lady is Iggy Pop, which is why Im here 😂

[@intressepilen3728]

Thank you!

[@BrianFeroldiYT]

Welcome!

[@Guni8112]

I only look at net income, total assets, total debt and dividend . As long as the income is growing or at least making profit and the debt is below 50% of assets and paying dividend, I'll be happy to invest in that company. But for gambling into company, I'll just follow the market hype.

[@niknabernik4700]

Great video

[@BrianFeroldiYT]

Thanks for the visit!

[@Gengingen]

Thanks 😊

[@BrianFeroldiYT]

Thanks for watching!

[@suroo4527]

I never seen simplest example of this Now everyone understands 😅

[@BrianFeroldiYT]

Glad to hear it was useful!

[@davianoinglesias5030]

😅Only an Accountant can fit in so much useful information within a 10 minute video

[@BrianFeroldiYT]

Glad it was helpful!

[@satoshinakamoto3342]

EBITDA is your crush you want to take to the prom, Free Cash flow is your cousin you have to take to the prom

[@BrianFeroldiYT]

LOL

[@7guitarlover]

Amazing !

[@BrianFeroldiYT]

Thank you! Cheers!

[@Grzeroli1]

I still don’t get why the metric is called cash *flow*, and not account balance. Where is the flow in a that?

[@BrianFeroldiYT]

Because Cash is constantly coming in

[@ELconomics101]

I'm here for all the information lol 🤓

[@BrianFeroldiYT]

👍

[@BrunoCosta-ui6ll]

Ok thanks! Now without reading script!

[@BrianFeroldiYT]

Would be much harder to make these videos succintly without a script

[@rightright6582]

Why is EBITDA USED AS A MULTIPLIER TO VALUE OR SELL A BIZ?

[@billmartin1663]

Because it ignores major components of expenses that are vital to keeping a company running. EBITDA assumes you're going to completely stop operating when your current capital assets wear out. And for promoters, if they can find buyers who are ignorant of the fact, it makes the company look a lot better than it actually is.

[@rightright6582]

@@billmartin1663 what type of major components of expenses if I may ask?

[@juandiosdado]

Cool, now please tell us about Community Adjusted EBITDA 😂

[@BrianFeroldiYT]

Lol

[@pierre-louisfargues89]

really great video but i think you made a mistake explaining the cost of the car. You may modify it since when you sell the car in year 10 the cost is 0$. Cost in year 10- 3000 of you selling it. If not like this you should sell the car in year 11 because you use it during the year number 10 aswell. I wait for your feedback to know if I am corrrect.

[@BrianFeroldiYT]

That's just a simple example to explain the concept

[@soulfulwapechi]

In short ---- always evaluate with FCFF. You will never be led astray.

[@BrianFeroldiYT]

It’s a much more reliable predictor than the other metrics

[@healthychocolatenews]

mAN! yOUR GREAT AT EXPLAINING IT TO ME!

[@meibing4912]

I'm with Buffet here: EBITDA is not a solid indicator of how well a company is actually doing. Too many options for manipulation. No set standard for the calculation.

[@BrianFeroldiYT]

Ditto

[@ColbyBarradas]

Awesome

[@GoodnotGreat88]

why are you yelling at me

[@duckheadedmonster]

That thumbnail told me that ebidta may look better but free cash flow sounds better.

[@BrianFeroldiYT]

LOL

[@katalambda]

Cash is the king!

[@BrianFeroldiYT]

agreed on that!

[@mir3877]

I like EBITDA. It's so beautiful

[@BrianFeroldiYT]

Lol

[@thepvpchannel-oq7nq]

dont know what happend but I tried to get the free copy u offer, and didnt work, couldnt get it, meaning, I COULDNT GET THE FREE COPY U PROMOTE,

[@BrianFeroldiYT]

I just tried and it worked fine. Can you try again?

[@QcSnowboard]

Free cash flow is king.

[@BrianFeroldiYT]

Agreed!

[@vd416]

Why

[@QcSnowboard]

@@vd416 Free Cash Flow (FCF) shows how much cash a company generates after paying for expenses and investments, making it a true measure of profitability and financial health. For value investors is crucial because it reveals if a company can fund its own growth, pay dividends, and withstand downturns, all while offering insights into its intrinsic value. In short, FCF highlights whether a business has solid, sustainable cash flows that can drive long-term value.

[@federicoarceteran4929]

@@vd416 To put it very bluntly, because of the importance of cash flow as an ultimate indicator of health and as a tool to navigate uncertainty (or seize opportunities), and because compared to the other 2, it leaves less room for accounting fuckery (ie, distortions). A company under onerous tax burdens or debt payments can use EBITDA to make itself look better than it is. But these two elements aren't necessarily easy to change. They are, in essence, layers of reality that might have some flex to them, but likely don't. Net Income gets closer to being useful, but it's still subject to distortions because of the method of accounting.

[@TaharaLocc]

Simples: Free Cash Flow - net of the real money earned or lost from the actual business operations, spent on investments or raised through financing. Net income - the real money earned or lost from the actual business operations or sale of assets + the promises to pay, but who knows if the suppliers or customers will pay or not! EBITDA - the real money + the promises to pay, but who knows if they will pay or not + the money owed to banks as interests and government as taxes etc - i.e. fool's money! Bullshit income! Cash is King - the rest is all bling! More or less.

[@Viv8ldi]

Memo: free cashflow: actual cash generation capabilities

[@BrianFeroldiYT]

Correct

[@Jameson1307]

No one talking about paying only 3.5% on income taxes, while us, the workers, paying 40%…….. bastards

[@londonmeantime7123]

The thumbnail clearly shows, it’s accrual world out there😂 Every time I hear EBITDA, I hear we’ve not done well and we are trying to put lipstick on the pig

[@BrianFeroldiYT]

:)

[@efs83dws]

Most business owners can’t make sense of any of these measurements.

[@Compulsive_LARPer]

"Every time you hear 'EBITDA', substitute it for bullshit earnings" - Charlie Munger

[@BrianFeroldiYT]

I made a whole video about that!

[@Compulsive_LARPer]

@@BrianFeroldiYT :)

[@Green__one]

I thought it was Buffett that said that, I stand corrected. But he is 100% right. Any company can look good if you subtract most of their expenses from the balance sheet! It's no wonder that most companies hide all the real numbers and push EBITDA so hard.

[@erictyppo5850]

Nothing like non-GAAP earnings measures. PP&E and intangible assets suddenly become free!

[@billmartin1663]

I think both Buffet and Munger have said it. EBITDA is for fly-by-night promoters.

[@josemcgomes]

Comparing Sydney Sweeney to Iggy Pop was not on my 2024 bingo card.

[@BrianFeroldiYT]

It was the thumbnail you didn’t know you needed

[@aightm8]

Ebitda is garbage when a company has a lot of tangible assets. Buying a building you need to produce your product is a real cash expense, its practically an operating expense. Interest on debt is also a real cash expense, it really makes no sense. If a company is always in debt and paying interest, and always investing in new equipment or brick and mortar assets. Ebitda isnt a "better measure of the businesses performance".

[@BrianFeroldiYT]

Agreed

[@jeffbrassard1268]

Or to quote Charlie Munger, “Ebitda earnings are bullshit earnings”. Or Warren Buffett, “ Profit is an opinion, cash is a fact.”

[@Green__one]

Companies love it though, because it always makes them look good! The other one that I love is the companies that exclude "restructuring" costs from their balance sheet, claiming that they are one time expenses and therefore not relevant. Except I worked for a company that had significant "restructuring" costs every single year for over a decade, at that point it's kind of hard to ignore its effect on the money that the company makes!

[@GeorgeWilliamSinclair]

Love the thumbnail, thought it was clickbait but I was wrong, I don't know where the stock market is headed to right now. my portfolio of around 200k is not increasing more than 5$% and people are predicting a crash.

[@Amirealestateinvest]

Best way to get this is through turnkey assets like I have been able to attain

[@oldcyclist5880]

Truncating $73.795B to $73.7B rather than rounding to $73.8B. Interesting.

[@TManOriginal]

Still waiting for Iggy Pop to show up in the video.

[@BrianFeroldiYT]

Lol

[@mischadebrouwer9855]

And the chick, for that matter

[@EasyTiger.01343]

Why is he screaming?

[@jankarlsson8341]

So free cash flow is more punk you mean?

[@BrianFeroldiYT]

Depends on your definition of punk, I guess

[@Vivi-yu7rz]

I prefer Iggy anyway

[@BrianFeroldiYT]

lol

[@adrianguillermolenzincampo2721]

Iggy Pop❤,is a safe bet.

[@BrianFeroldiYT]

Lol

[@dannyarcher6370]

Now explain why accrual accounting is a thing. Depreciation is just another bullshit accounting trick.

[@BrianFeroldiYT]

Disagree. Depreciation is a real expense.

[@dannyarcher6370]

@@BrianFeroldiYT The cost of the item is a real expense. It should be listed as a one-off expense. It's the spreading it over some thumbsuck "useful life" period that I have a problem with.

[@magdalena2115]

tumbnail says it all hahaha

[@BrianFeroldiYT]

:)