How does EBITDA relate to cash flow?

EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, provides a useful metric for assessing a company's operating performance by focusing on earnings derived from core business operations. It is a good indicator of a company's profitability and operational efficiency, excluding non-operational factors and non-cash expenses such as depreciation and amortization.

However, EBITDA does not account for actual cash flow because it does not incorporate changes in working capital, capital expenditures, or other mandatory cash outflows. As a result, while EBITDA can serve as a proxy to suggest how well a company is performing operationally, it cannot be considered an exact measure of cash flow. This distinction is critical for understanding a company's liquidity and financial health.

The other choices reflect misconceptions about EBITDA's relationship to cash flow. It does not fully capture working capital changes, nor does it provide precise measurements of future cash flow. Therefore, option B accurately highlights EBITDA's role as an indicator of operational performance without representing actual cash flow directly.