Wednesday, December 21, 2011

EBITDA x CFO

After reading this post I was wondering by how much EBITDA overestimate cash generated by companies operations (CFO). 
In order to get an answer for that I took the 10 greatest non-financial companies listed on Bovespa and compared EBITDA with CFO reported.


And here goes my conclusions/notes:
  • I took EBITDA and CFO as reported, except for the CFO of BRFS3 and GGBR4. These two companies put purchases/sales of trading securities on the CFO. That doesn't make sense, since you are just converting one kind of money in another. It's not cash generated by operations. So I excluded that values.
  • For all 20 years analysed, EBITDA was higher than CFO, except in 3 ones. In the case of Eletrobras is because they add back all interests expenses and the start line of CFO is earnings before taxes. So they add back all interests expenses and taxes and doesn't subtract. So CFO as reported worth nothing. 
  • Gerdau in 2009 had a big increase in inventories and receivables, because in 2008 it had a great decrease in this accounts. If I make an average of EBITDA and CFO in 2008/2009, EBITDA would be 6.919 and CFO would be 4.812. So EBITDA is 43.8% higher than CFO in 2008/2009.
  • Cielo pays a lot of taxes and invest a lot in receivables. That's why CFO is so lower in relation to EBITDA.
  • It's very clear from the table above that EBITDA was created to artificially increase cash generated by the companies. Recurrently, EBITDA overestimates CFO. On average (in fact I used median, that is not distorted by the outliers) for this sample, EBITDA is about 30% higher than CFO.
  • It's probably that the overestimation would be even higher, because I just took the CFO as reported and we know that some (most) cash flows are very tricky and needs adjustments. That's the case of Eletrobras, that add back all interests expenses and doesn't subtract it.


Under no circumstances does any article or opinion posted on this blog represents any kind of advice, suggestion or recommendation to buy or sell any security. We also do not guarantee the accuracy of any information contained in any posting on this blog.

Related Posts

0 comments:

Post a Comment

We encourage your feedback and we will take your comments into serious consideration. However, you must be warned that any comment that does not follow the blog philosophy (Value Investing and Behavioural Finance) will be promptly removed.