Cash Flow Metrics Comparison

EBIT

EBITDA

EBITDAR

Net Income

NOPAT / NOPLAT

FCFF

FCFE

Net Profit

Tax-Effected EBIT

Unlevered Free Cash Flow

Levered Free Cash Flow

aka

Operating Income

Calculation

On Income Statement

Operating Income +
D&A

Operating Income + D&A +

Rent Expense

On Income Statement

EBIT * (1 T)

EBIT * (1 T) + D&A
CapEx + WC

Net Income + D&A

CapEx + WC + Debt

Valuation Metric

Enterprise Value

Enterprise Value

Adjusted Enterprise Value

Equity Value

Enterprise Value

Enterprise Value

Equity Value

Valuation Multiple

TEV / EBIT

TEV / EBITDA

Adjusted TEV / EBITDAR

Equity Value / NI

TEV / NOPAT

Not Meaningful

Not Meaningful

Financial
Stakeholders

Equity, Debt, Preferred,

Govt, MI s/h
Recurring sustainable
profit from core
operations before the
effects of capital
structure & leverage
Does not add back D&A
since EBIT includes all
legitimate expenses

Equity, Debt, Preferred,

Govt, MI s/h

Equity only

Net figure, after all

other stakeholders
claims have been paid

Equity, Debt, Preferred,

MI s/h
Similar but not equal to
Net Income; as if no
debt and interest, so
pre-capital structure &
leverage
Typically used in
Economic Analysis and
EVA for compensation

Equity, Debt, Preferred,

Govt, MI s/h

Adds back D&A to better

approximate cash flow
since D&A is non-cash

Equity, Debt, Preferred,

Govt, MI s/h
Important for industries in
which there is a lease vs.
buy decision in COGS,
typically transport (but
not retail!)
Allows comparison of
firms that buy vs. lease in
the same industry

CapEx Relationship

Ignores CapEx

Ignores CapEx

Ignores CapEx

Ignores CapEx

Ignores CapEx

Incorporates CapEx

Incorporates CapEx

Interest
Relationship

Pre-Interest

Pre-Interest

Pre-Interest

Post-Interest

Pre-Interest

Pre-Interest

Post-Interest

Income Tax
Relationship

Pre-Taxes

Pre-Taxes

Pre-Taxes

Post-Taxes

Post-Taxes

Post-Taxes

Post-Taxes

Core vs. Non-Core

Core Business Only

Core Business Only

Core Business Only

Includes Non-Core $

Core Business Only

Core Business Only

Includes Non-Core $

Credit Ratios
Significance

Very important for

interest coverage
(1) include the effect of
CapEx and D&A
(2) also when CapEx /
D&A) is fairly significant
(1) further removed
from cash flow figure
(2) Excludes CapEx
which reduces cash flow
(3) Includes MI s/h $

Critical for Debt/EBITDA

and interest coverage
Cash flow based firms
(services) and capital
intensive businesses
(manufacturing)

Sometimes important for

financial covenant ratios
Same as EBITDA and
normalize the impact of
buy vs. lease decisions in
same industry sector

Not Important

Not Important

Not Important

Not Important

(1) ROE, ROA, ROC, etc.

(2) Exclude impact of
stock buybacks
(3) Private company PE

Economic Value Added

analysis

Discounted Cash Flow

valuation

Virtually none

(1) D&A is legit expense

(2) Excludes CapEx
which reduces cash flow
(3) Includes MI s/h $

Only relevant for some

industries

After the effects of

capital structure
impossible to ascertain
source of profitability

Somewhat irrelevant in
valuation context

Not true cash figure since

starts with EBIT still
subject to manipulation of
accrual accounting

To be avoided at all
costs; use upon penalty
of death

Explanation

Comparison vs.
Other Metrics

Use Case(s)

Pitfalls

Proxy for cash flow to all

financial stakeholders
before effects of capital
structure & leverage

Equity only
Profit to equity
stakeholders after the
effects of capital
structure & leverage

Calculates discretionary
free cash flow to financial
stakeholders
Used primarily for DCF
valuation models

Legend:
EBIT = Earnings Before Interest and Taxes; EBITDA = Earnings Before Interest and Taxes and Depreciation and Amortization; EBITDAR = EBITDA + Rent; T = tax rate
NOPAT = Net Operating Profit After Tax; NOPLAT = Net Operating Profit / Loss After Tax; FCFF = Free Cash Flow to Firm; FCFE = Free Cash Flow to Equity
TEV = Total Enterprise Value; never use the acronym EV since it is unclear if it is in reference to Enterprise or Equity Value; Adjusted Enterprise Value = TEV + Off-Balance Sheet Operating Leases
TEV = Equity Value + Net Debt (excluding capital leases) + Preferred + Minority Interest (and in Oilfield Services & Equipment: + Investment in Affiliates)
MI s/h = Minority Interest shareholders; PE = Price / Earnings ratio; ROE, ROA, ROC = Return on Equity, Assets and Capital (Debt + Equity)
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Net cash flow to Equity

stakeholders after
interest expense; easily
manipulated via capital
structure changes
To be avoided at all
costs; use upon penalty
of death