Net Debt x Cash Flow

M. Dias Branco (MDIA3) cash flow for 2011 is the following:

• Net Cash generated in operating activities: 431.50
• Net Cash used in Investment Activities: -273.70
• Net Cash used in Financing Activities: -116.90

So, in 2011 the increase in cash and cash equivalents was 40.90. That is, it generated cash to pay investments, dividends and also to amortize 29,4 in debt.

However, net debt totaled 468.4 million in 4Q11, up 121.8% on 4Q10! 

How could that be? Where the trick is?

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:

EBITDA Fantasy

Nothing besides what we know, but the article is interesting anyway.

A Fantasia do EBITDA

They point out that EBITDA is inadequate to measure cash flow, mainly because it doesn't count for financial expenses. Besides that, I add the following EBITDA flaws:

• Ignore tax payments
• Ignore investments in work capital (inventories and receivables) as revenue grows
• Ignore investments made by the company
• Count all account trick as being cash (like reversal of provisions or gain on biological assets)

Yes, EBITDA was created on purpose to overvalue companies real gains!