The Finance Gem 💎 #108: Profit, EBITDA and the Ilusion of Performance

Hi there, 

Most CEOs obsess over profit.

But profit is not performance. You can post record earnings and still be cash-starved, underinvested, or scaling a fragile business.

I see it all the time: companies falling into the EBITDA trap. EBITDA is treated like a shortcut to cash—but it hides the truth. It blinds leaders to what’s really happening in their business.

In today’s issue, I’ll show you why profit and EBITDA both mislead—and what strategic finance leaders focus on instead.

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EBITDA is not cash flow

EBITDA is a profitability metric. It strips out depreciation, amortization, interest, and taxes to create a “cleaner” view of operating profit. But what it removes are often the very items that determine whether the company can meet obligations, reinvest, and grow.

That’s why EBITDA ≠ Operating Cash Flow (OCF).

Here’s what EBITDA ignores—and OCF captures:

• Taxes actually paid: EBITDA adds them back. OCF reflects the cash that left the business.

• Working capital swings: Receivables, inventory, and payables absorb or release cash. EBITDA excludes them.

• Real cash costs: Provisions, reserves, stock comp, severance, restructuring—EBITDA calls them “non-operating.” OCF shows the outflows.

• Extraordinary inflows: Grants or one-offs excluded from EBITDA still hit cash.

• CapEx: EBITDA ignores it. Free Cash Flow incorporates it, because reinvestment drains liquidity now, not later.

So remember: EBITDA may be useful for comparing profitability, but it is not a proxy for cash flow. Strategic financing, capital allocation, and board-level decisions should be grounded in OCF and Free Cash Flow—not EBITDA.

Profit has layers—not one definition

Profit is also easily misunderstood. It isn’t one number. It exists in layers: gross, operating, and net. A company can post profit at every level and still destroy value if the earnings don’t convert into liquidity. Strategic leaders don’t stop at the bottom line—they dissect profit across its layers to understand mix, pricing power, and efficiency.

Beware the profit traps

High-performing CEOs know that not all profit is equal and they know to avoid the most common traps:

• High profit, low cash: when working capital or CapEx drains liquidity while the P&L looks strong.

• Cost-cutting mirages: when margins improve by stripping investment in people, R&D, or maintenance.

• Mix distortion: when profitability is driven by low-quality, high-risk revenue streams.

• Underpricing risk: when revenue growth erodes into thin or negative delivery margins.

• Ignoring reinvestment: when you’re reporting profit while lacking the capital to fund growth.

These traps create false confidence. Boards see earnings. Leaders assume strength. But the business is structurally weaker.

How to analyze your Profit strategically

Here’s how you can avoid traps and go deeper:

• Start with gross profit to see product mix, margin dynamics, and COGS structure.

• Review operating profit to separate core operations from non-core.

• Assess net profit by stripping out one-offs, FX, and financial noise.

• Compare profit across time and segments—customer, product, and geography.

The goal isn’t just “how much profit did we make?” It’s a deeper understanding on where profit comes from, whether it’s sustainable, and how it converts to cash.

Profit and EBITDA are outcomes—not strategy

The question is not whether you made money. It’s whether your system for creating profit is durable, scalable, and cash-generating. Strategic leaders ask:

• Are we pricing and allocating capital intentionally?

• Are we converting earnings into cash consistently?

• Are we funding initiatives that compound long-term value?

• Are incentives aligned to sustainable margins—not short-term optics?

When profit and EBITDA are managed in isolation, companies scale risk. When managed in context, they become signals for foresight, capital discipline, and value creation.

If you want this level of financial discipline inside your company—fully automated and segmented profit dashboards, cash-generating forecasts, capital allocation tools, and board-ready outputs—Financiario was built for you.

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