What is cash flow a better indicator of than EBITDA?

The selected answer highlights an important distinction between cash flow and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). While EBITDA is often used as a measure of a company’s profitability by assessing earnings generated before accounting for certain expenses, it does not account for cash movements in the business, such as capital expenditures, changes in working capital, or interest payments.

Cash flow, on the other hand, provides a direct insight into the actual cash generated by a company's operations, offering a clearer picture of how well a company can meet its short-term obligations and invest in growth. This reliability in reflecting the available liquidity makes cash flow a more relevant indicator in assessing a company's financial health and its ability to sustain operations, pay creditors, and fund future expenditures.

In contrast, while EBITDA serves as a useful gauge of operating performance and profitability, it can sometimes present an overly optimistic view by ignoring cash implications tied to necessary expenditures. Thus, cash flow is better positioned to indicate a company's true financial stability and ability to generate funds than EBITDA.