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Fire Your Stock Analyst!: Analyzing Stocks on Your Own by Harry Domash

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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.

Table 11-25. Comparison of free EBITDA vs. free ...

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