Free EBITDA
Just as subtracting capital expenditures from operating cash flow gives you free cash flow, you can calculate the EBTIDA equivalent of free cash flow; call it free EBITDA, by subtracting capital expenditures from EBITDA:
free EBITDA = EBITDA – capital spending
Since using EBITDA in place of operating cash flow smoothes out the volatility caused by dubious operating cash flow entries and by short-term working capital changes, free EBITDA should give a better picture of a firm’s cash flow after accounting for capital expenses than the traditional free cash flow measure.
As an example, Table 11-25 compares Chico’s fiscal year free EBITDA and free cash flow numbers over recent years.
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