The Finance Gem 💎 #92: Exactly how EBITDA Fools Everyone (and how to fix it)

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In today’s Finance Gem:

• Why companies really fail (read on Linkedin)

• How to strategically budget and forecast (read on Linkedin)

• The 3 types of Cash Flows you must know and manage (read on Linkedin)

• How EBITDA is fooling everyone (and what you can do about it) - read below

THE SPRING COHORT OF THE CEO FINANCIAL INTELLIGENCE PROGRAM KICKS OFF APRIL 23.

If you’re a CEO, you already know that growth isn’t just about sales—it’s about capital, cash flow, risk, and return.

You want to feel confident in high-stakes financial conversations.
You want to know when the numbers support your instincts—and when they don’t.
You want to build a business that investors respect and teams trust.

That’s exactly what this program delivers. Fast.

The CEO Financial Intelligence Program is designed to help you:

• Read behind the numbers to see what’s really happening in your business

• Build a financial strategy that supports scale—not just survival

• Make decisions that increase valuation and protect cash flow

• Lead with the financial insight your board, lenders, and partners expect

We start April 23.

If you’re ready to run your business with the same financial intelligence as the companies you admire, now is the time.

6 weeks. Wed & Fri @ 12 PM EDT. Lifetime access. Flexible.

How EBITDA is fooling everyone (and what you can do about it)

EBITDA has become one of the most referenced metrics in business today.
It’s used in boardrooms, financial reporting, investor decks, and M&A negotiations.

But here’s the uncomfortable truth:

↳ EBITDA is incomplete.

↳ It’s easily manipulated.

And when used as the primary measure of performance, it leads CEOs to make decisions that erode long-term value.

Why is this happening?

EBITDA only shows profit before interest, taxes, depreciation, and amortization.

As a consequence,

↳ it tells you absolutely nothing about actual cash flow, capital efficiency, or risk-adjusted returns.

↳ it doesn't account for your capital structure or your ability to meet obligations.

And that’s because it literally strips away the very costs and investments that are necessary to sustain operations and fuel growth.

But wait, isn’t depreciation a non-cash expense anyway?

Yes it is, but it’s also a proxy of what you should expect to spend every year on your fixed asset infrastructure to simply maintain it and your revenue levels.

When you piece it all together, what EBITDA ultimately is create a false sense of financial health.

What exactly is happening?

• Because EBITDA ignores working capital…
  CEOs miss early signs of cash traps—like receivables growing faster than sales, or inventory tying up capital—until liquidity becomes a problem.

• Because EBITDA ignores actual cash movements…
  CEOs assume strong earnings mean strong financial health, yet still struggle to fund payroll, growth, or debt payments.

• Because EBITDA ignores capital structure and cost of capital…
  CEOs take on cheap-looking debt or equity without understanding the long-term dilution or risk exposure they’re building into the business.

• Because EBITDA can be massaged to look good even in a weak business…
  CEOs are misled into thinking things are going well, only to be caught off guard by a sudden cash shortfall, lender concern, or failed valuation event.

This is how businesses run into trouble while reporting record EBITDA.

And this is why focusing on EBITDA alone—without understanding its limitations—can undermine enterprise value, not build it.

Enterprise Valuation is not built on EBITDA.

It’s built on future free cash flows, adjusted for risk, and supported by strong fundamentals across liquidity, solvency, and capital efficiency.

So if you want to:

• improve your valuation

• protect cash flow

• lead your company to real strategic outcomes

then you need to shift your focus to what actually drives performance.

Which leads us to the next step.

How can you improve EBITDA without being fooled by it?

Here’s the secret: you need to learn to manage the 8 critical EBITDA drivers well. And if you do that, you will not only improve EBITDA for the right reasons—and strengthen the financial foundation of your business in the process.

The 8 EBITDA Drivers you need to focus on:

1. Revenue Growth
   Growth for the sake of growth is a trap - and often an expensive one.

   ↳ Don’t ask: Are we growing? The real question is what kind of growth is it?

   Quality growth drives margin, lifetime value, strong operating cash flow and predictable earnings. Focus on what lasts: retention, repeatability, and contribution margin.

2. Cost Optimization
   Cutting costs can improve short-term EBITDA but kill long-term value.

   ↳ True cost optimization means eliminating waste without hurting your ability to deliver value. Leaders need to build lean, scalable cost structures that support both growth and profitability.

3. Operational Efficiency
   Anyone can cut costs. The real skill is knowing where not to.

   ↳ Short-term EBITDA wins mean nothing if you gut your ability to grow.

   True optimization eliminates waste—not value—and builds a cost structure that scales with you, not against you.

4. Pricing Strategy
   Underpricing is often a sign of fear—or unclear value. Sometimes both.

   ↳ If you understand pricing power, you know it’s about balancing volume, margin, and positioning—not just guessing what customers will tolerate.

   Smart pricing goes straight to your bottom line and directly impacts valuation. Don’t leave money on the table trying to be everyone’s bargain.

5. Customer Retention
   A profitable business with high churn is a value trap.

   ↳ Retaining customers increases lifetime value and reduces the cost of acquisition. Focus on what happens after the sale—loyalty programs, recurring revenue models, and making sure customers stick around—and they’re a lot cheaper than finding new ones.

6. Innovation and Digital Transformation
   Sustainable EBITDA demands reinvention on repeat.

   ↳ In the age of AI and automation, innovation isn’t optional—it’s operational. It’s not just about new products, but about how your business runs. Digitize workflows, automate the repetitive stuff, leverage data, and build around your customer. That’s how you scale efficiently and stay competitive.

7. Strategic Partnerships
   No company scales alone. Even superheroes need a team.

   ↳ Smart partnerships unlock new markets, stretch your resources, and cut your time to value—because time is your most expensive, non-renewable asset. Just make sure every handshake earns its keep.

8. Financial Management and Risk Mitigation
   Sound financial strategy is the foundation of sustainable EBITDA.

   ↳ As leaders, this is how you protect the value you create. “Winging it” doesn’t scale—so plan for different scenarios, hedge your risk, keep your debt levels in check (before your lender does it for you) and make sure your CapEx spend actually moves you toward your long-term goals.

When you manage these eight drivers, EBITDA becomes an outcome of strong financial management—not a target to chase or manipulate.

This is what CEOs and leaders need today. Not just better reporting. Not just better dashboards. But a stronger understanding of how financial decisions connect to long-term value creation.

If you’re ready to become the kind of executive leader investors trust, teams follow, and businesses scale with—join the CEO Financial Intelligence Program.

Don’t Delay. Starts April 23.

Ever wondered how top companies engineer financial success while others struggle to keep up?

THEY DON TRUN ON BORROWED INTELLIGENCE - THEY BUILD THEIR OWN

Download the free guide and learn more: How the Budget is Keeping you Stuck

How much faster would your company move with its own CFO Brain? Find out here.

Over 1,000 of you registered for this week’s EBITDA Masterclass and it was truly one of the most exciting sessions I’ve ever done.

Catch up on the recording below.

Stay tuned: Upcoming Guest Appearance on The CEO Project Podcast

I recently joined Jim Schleckser on The CEO Project Podcast to discuss why executive financial intelligence is so critical to scaling profitably and driving shareholder value.

Jim is the Founder and CEO of The CEO Project, a remarkable organization that matches exceptional CEOs with similar traits, challenges, and business characteristics in curated peer groups. The power of peers helps CEOs arrive at better answers and outcomes faster and the CEO Project members run 50 - 7,000 employee businesses with revenues of $20 million to $2 billion. Jim is also the author to Great CEOs Are Lazy which I cannot wait to dive into this weekend.

A big thank you to Jim and Sharon - excite for the episode to air!

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