Which cash expense not reflected in EBITDA could cause a company to become cash flow negative despite positive EBITDA?

Which cash expense not reflected in EBITDA could cause a company to become cash flow negative despite positive EBITDA?

• A. Capital Expenditures
• B. Interest Expense
• C. Debt maturities
• D. Non-recurring charges

Answer: (A)

Profitability from operations, as shown by EBITDA, ignores cash spending on long‑term assets. CapEx is a cash outlay for buying or upgrading physical assets, but it isn’t recorded as a periodexpense in EBITDA—the effect shows up later through depreciation. So a company can post positive EBITDA while still draining cash if it’s investing heavily in capital expenditures. That direct cash hit from CapEx can push overall cash flow negative even though operating earnings look strong. Other options involve cash outlays tied to financing or one-time items, which don’t illustrate the same ongoing disconnect between reported operating earnings and actual cash movement as a large capital expenditure does.

Profitability from operations, as shown by EBITDA, ignores cash spending on long‑term assets. CapEx is a cash outlay for buying or upgrading physical assets, but it isn’t recorded as a periodexpense in EBITDA—the effect shows up later through depreciation. So a company can post positive EBITDA while still draining cash if it’s investing heavily in capital expenditures. That direct cash hit from CapEx can push overall cash flow negative even though operating earnings look strong.

Other options involve cash outlays tied to financing or one-time items, which don’t illustrate the same ongoing disconnect between reported operating earnings and actual cash movement as a large capital expenditure does.