Services
You want your attention to be on growing and developing your company. You require (financial) advice about issues such as: whether to take care of your...
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Financial administration & outsourcing
Entrepreneurs who outsource financial administration reduce the number of administrative tasks and consequently have more time and space to focus on growth.
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Financial insight
We help you turn financial data into valuable insights that support you in making well-founded decisions. In-depth analyses of your financial situation will help give you a better idea of where you stand and where the opportunities for growth lie, both in the short and long term.
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Financial compliance
We make sure your company complies with financial legislation and regulations, with correct financial statements, tax reports and other obligations. From our global network, we support you in managing local and international tax risks.
Everyone – companies, entrepreneurs and individuals – has to deal with taxes. A complex system of payments and levies, tax regimes also offer opportunities for...
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Impact House by Grant Thornton
Building sustainability and social impact. That sounds good. But how do you go about it in the complex world of stakeholders, regulations and frameworks and changing demands from clients and society? How do you deal with important issues such as climate change and biodiversity loss?
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Business risk services
Minimize risk, maximize predictability, and execution Good insights help you look further ahead and adapt faster. Whether you require outsourced or co-procured internal audit services and expertise to address a specific technology, cyber or regulatory challenge, we provide a turnkey and reliable solution.
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Cyber risk services
What should I be doing first if my data has been kidnapped? Have I taken the right precautions for protecting my data or am I putting too much effort into just one of the risks? And how do I quickly detect intruders on my network? Good questions! We help you to answer these questions.
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Deal advisory
What will the net proceeds be after the sale? How do I optimise the selling price of my business or the price of one of my business activities?
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Forensic & integrity services
Do you require a fact finding investigation to help assess irregularities? Is it necessary to ascertain facts for litigation purposes?
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Valuations
Independent and objective valuations tailored for mergers, acquisitions, and legal matters.
Reliability of information. The way in which reliable information is produced. That is what assurance is all about. It is crucial for information to be...
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Auditing of annual accounts
You are answerable to others, such as shareholders and other stakeholders, with regard to your financial affairs. Financial information must therefore be reliable. What is more, you want to know how far you are progressing towards achieving your goals and what risks may apply.
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IFRS services
Financial reporting in accordance with IFRS is a complex matter. Nowadays, an increasing number of international companies are becoming aware of the rules. But how do you apply them in practice?
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ISAE & SOC Reporting
Our ISAE & SOC Reporting services provide independent and objective reports on the design, implementation and operational effectiveness of controls at service organizations.
Do you have an ambitious international company? And do you want to stay ahead of the competition? Then you need to be able to rely on the best international...
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International corporate tax
The Netherlands’ tax regime is highly dynamic. Rules and the administrative courts raise new challenges in fiscal considerations on a nearly daily basis, both nationally and internationally.
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VAT advice
VAT is an exceptionally thorny issue, especially in major national and international activities. Filing cross-border returns, registering or making payments requires specialised knowledge. It is crucial to keep that knowledge up-to-date in order to respond to the dynamics of national and international legislation and regulation.
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Customs
Importing/exporting goods to or from the European Union involves navigating complicated customs formalities. Failure to comply with these requirements usually results in delays. In addition, an excessively high rate of taxation or customs valuation for imports can cost you money.
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Innovation & grants
Anyone who runs their own business sets themselves apart from the rest. Anyone who dares stick their neck out distinguishes themselves even more. That can be rather lucrative.
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Tax technology
Driven by tax technology, we help you with your (most important) tax risks. Identify and manage your risks and become in control!
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Transfer pricing
The increased attention for transfer pricing places greater demands on the internal organisation and on reporting.
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Sustainable tax
In this rapidly changing world, it is increasingly important to consider environmental impact (in accordance with ESG), instead of limiting considerations to financial incentives. Multinational companies should review and potentially reconsider their tax strategy due to the constantly evolving social standards
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Pillar Two
On 1 January 2024 the European Union will introduce a new tax law named “Pillar Two”. These new regulations will be applicable to groups with a turnover of more than EUR 750 million.
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Cryptocurrency and digital assets
In the past decade, the utilization of blockchain and its adoption of a distributed ledger have proven their capacity to revolutionize the financial sector, inspiring numerous initiatives from businesses and entrepreneurs.
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Streamlined Global Compliance
Large corporations with a presence in multiple jurisdictions face a number of compliance challenges. Not least of these are the varied and complex reporting and compliance requirements imposed by different countries. To overcome these challenges, Grant Thornton provides a solution to streamline the global compliance process by centralizing the delivery approach.
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Private wealth services
Our Private Wealth specialists offer strategic and practical solutions. From tax advice to estate planning and financial scenarios, we make sure you make the right choices today, for tomorrow.
Proactive and pragmatic: that's how we work. How do I ensure that the agreements between our shareholders are clearly established? What are my rights and...
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Corporate Law
From the general terms and conditions to the legal strategy, these matters need to be watertight. This provides assurance, and therefore peace of mind and room for growth. We will be pro-active and pragmatic in thinking along with you. We always like to look ahead and go the extra mile.
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Employment Law
What obligations do you have with an employee on sick leave? How do you go about a reorganisation? As an entrepreneur, you want clear answers and practical solutions to your employment law questions. At Grant Thornton, we are there for you with clear advice, from contracts and terms of employment to complex matters such as dismissal or reorganisation.
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Sustainable legal
At Grant Thornton, we help companies integrate sustainability into their business operations, with sustainable legal at the heart of our approach. We advise on ESG (Environmental, Social, Governance) legislation, and help draft sustainable contracts, implement HR policies, and carry out ESG due diligence in M&A transactions (Mergers and Acquisitions).
Do your employees determine the success and growth of your organisation? And are you in need of specialists which you can ask your Human Resources (HR) related...
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Pension advisory services
Are you, as business owner or employer, well prepared in terms of pension and other future facilities?
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Global mobility services
How can you build and evolve a smart global mobility strategy, with policies and processes addressing the complex challenges of managing an international workforce?
The building and real estate sector is facing a lot of challenges. Improving sustainability, innovation, but also transformation are important themes. By...
Family businesses occupy a unique position, in the Netherlands as well as worldwide. They are seen as a (stable) engine of the economy. This is characterized,...
The financial services sector is evolving rapidly, driven by increasing regulatory demands, technological advancements, and shifting client expectations.
The Netherlands is a real trading country, due to its location, infrastructure and the highly-educated population. The port of Rotterdam, the biggest port in...
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Maritime sector
How can you continue to be a global leader? The Netherlands depends on innovation. It is our high-quality knowledge which leads the maritime sector to be of world class.
If you’re preparing to sell or invest in a company, focusing on EBITDA alone can be a costly mistake. Let’s uncover why.
Contents
Does EBITDA really tell the whole story?
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) is often the go-to metric for evaluating a company's profitability. But here’s the catch: EBITDA is not cash flow. Many businesses appear strong on paper, boasting robust EBITDA, yet struggle with liquidity, hidden costs, and cash flow shortfalls.
The EBITDA trap: When profits don't convert to cash
A business can report high EBITDA while quietly struggling to meet its financial obligations. Why? Because EBITDA ignores:
- Working capital fluctuations: A company may stretch payables or accelerate receivables to inflate short-term cash flow. But what happens when these strategies become unsustainable?
- CapEx needs: Underinvestment in maintenance or upgrades can temporarily boost EBITDA and/or cash flow, but eventually leads to costly catch-up spending.
- Debt: EBITDA excludes interest and principal repayments, which directly affect a company’s cash position.
- One-time adjustments: Many companies present "adjusted EBITDA," adding back non-recurring costs. But are these truly one-time, or do they hint at ongoing cash flow problems?
- Non-operational cash movements: Legal settlements, restructuring costs, or changes in provisions are often ignored by EBITDA, but are still very real cash outflows.
- Taxes: EBITDA excludes taxes, which are a real and sometimes significant cash outflow.
Relying solely on EBITDA, without assessing cash conversion, can lead to overpaying for a business that may struggle to fund operations or sustain growth.
Possible red flags behind strong EBITDA
Even when EBITDA appears strong, it's crucial to dig deeper. Key cash flow risks often lurk beneath the surface:
- Deferred maintenance and underinvestment: Companies looking to sell often reduce capital expenditures to boost short-term results. But postponed investment can lead to costly breakdowns and future capital needs that eat into cash flow.
- Aggressive working capital tactics: A business might cut inventory levels or delay supplier payments to temporarily improve cash flow. After an acquisition, these tactics may reverse, creating an unexpected drain on liquidity.
- Debt-fueled growth: Growth driven by leverage may look profitable on paper, but can strain cash once repayments begin.
- Seasonality or timing mismatches: A snapshot of EBITDA might mask seasonal working capital swings or timing differences between revenue recognition and cash receipts/payments.
- High customer concentration: A large portion of EBITDA coming from one or two key customers can be risky, especially if contract terms are short or volume-based discounts apply.
- Under-resourced finance function: Weak financial controls or manual processes may lead to missed accruals, revenue leakage, or inaccurate reporting that distorts EBITDA quality.
- Pending or contingent liabilities: Legal claims, warranty exposures, or earn-outs not yet provisioned may not show up in EBITDA but will impact future cash flows.
Why Cash Conversion Matters in M&A
Smart buyers don’t just look at EBITDA; they evaluate how efficiently it converts into free cash flow. A business with strong EBITDA but weak cash flow may indicate:
- Operational inefficiencies
- Unsustainable working capital strategies
- Hidden liabilities or underreported costs
Key metric: Free cash flow conversion
A healthy business should generate strong free cash flow relative to EBITDA. If conversion is low, it’s a red flag that warrants further investigation.
What this means for valuation
Businesses with weak cash conversion often don’t justify high EBITDA multiples. Adjusting for real cash flows ensures a fair valuation and helps prevent post-acquisition surprises.
EBITDA is just the starting point
Relying on EBITDA alone is risky. A deep dive into cash flow, working capital, net debt and capital expenditures provides a clearer picture of financial health.
Whether you’re selling or acquiring, ask yourself: Does the EBITDA story match the cash reality?
Preparing to sell or evaluating an acquisition? Contact our Deal Advisory specialists to ensure EBITDA aligns with underlying cash flows and reflects the true financial health and value of the business.