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The company has positive EBITDA but no cash — where the gap comes from
It is the most frequent conversation I have with owners: “we are profitable, so why is there no money for social contributions?”. The answer almost always sits in three items the P&L does not show. Below — how to get from EBITDA to cash, a worked example and a list of things to check before payroll runs dry.
Author: Tomasz FordymackiPublished:
From EBITDA to cash — five steps
| Step | What you subtract / add | Where to find it |
|---|---|---|
| 1. EBITDA | operating result + depreciation | the P&L |
| 2. − increase in working capital | (receivables + inventory − trade payables) today minus a year ago | balance sheet, two periods |
| 3. − income tax paid | advances actually transferred, not book tax | statements / cash-flow statement |
| 4. − capital expenditure | machines, refurbishments, software, cars — including leased | cash-flow statement, fixed-asset register |
| 5. − principal and interest, + new financing, − dividends | everything that goes to banks, lessors and owners | schedules, resolutions |
| = change in cash | must match the balance sheet to the cent — if not, something was left out | balance sheet: cash |
Example: a company that grows and loses cash
The model company from the demo on this site: revenue grows from PLN 24.1m to 31.6m, EBITDA 3.4m. Looks great. But receivables are 106 days of sales versus 62 in the sector — with sales up 7.5m, the increase in receivables alone is about 2.2m; inventory grows another 0.6m; trade payables grow only 0.4m. Working capital takes 2.4m. Tax 0.5m, capex 0.9m, instalments 0.7m. Result: EBITDA 3.4 → change in cash −1.1m. A company with a “record year” ends it with less money than it started — not an anomaly, just the arithmetic of growth with slow collections.
What to check this week
- Receivable days: receivables ÷ revenue × 365. More than 15 days above invoice terms — you have a collection problem, not a result problem.
- Inventory days: inventory ÷ cost of sales × 365. If it rises for a third month running, purchasing is ahead of sales.
- Annual instalments (principal + interest + leases) against EBITDA: above 60–70 % there is no room for investment or a weaker quarter.
- Dividends and owner withdrawals over the last 12 months against the change in cash — sometimes that is the whole answer.
- A 13-week cash ledger — if any answer above was worrying, that is the next step.
Frequently asked questions
Is EBITDA useful for anything at all?
Yes — for comparisons between companies and for multiple-based valuation, because it removes differences in depreciation, financing and tax. For assessing liquidity it is useless, and that is the whole problem: the same number serves two purposes, only one of which makes sense.
How much working capital is “normal”?
It depends on the sector: 60–100 days of sales in project services, 30–60 in trading, possibly negative in make-to-order manufacturing (prepayments). The trend and the comparison with contractual terms matter more than the level — receivable days above invoice terms are delays, not a business model.
Where to get a cash-flow statement if the company does not prepare one?
Small entities need not — then you compute it yourself from two balance sheets and the P&L, the indirect method, exactly as in the table above. It takes an hour if the books reconcile; if the result does not match the change in cash on the balance sheet, that in itself is a finding.
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