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When fleetwood enterprises Inc
When fleetwood enterprises Inc., a large producer of recreational vehicles and manufactured housing, warned that it might not be able to generate enough cash to satisfy debt requirements and could be in default of a loan agreement, its cashflow, defined in financial press as EBITDA (earnings before interest, taxes, depreciation, and amortization), was a negative $2.7 million. The company would have had to generate $17.7 million in the next accounting period to comply with the loan terms. What section of the statement of cash flows does EBITDA most closely relate, is EBITDA a good approximation for this section of the statement of cash flows, and explain your answer which should include the major differences between EBITDA and the section of the statement of cash flows that you choose?
Expert Solution
Section of the statement of cash flows does EBITDA most closely relate.
Operating activities section.
Step-by-step explanation
Section of the statement of cash flows does EBITDA most closely relate.
Operating activities section.
Is EBITDA a good approximation for this section of the statement of cash flows.
Yes, EBITDA is a good approximation for the operating activities section in the cash flow statement because the cash flow from operating activities equals EBITDA plus lower in current assets and rise in current liabilities minus increase in current assets and decrease in current liabilities.
Cash flow from operating activities section = EBITDA + decrease in current assets and increase in current liabilities - increase in current assets and decrease in current liabilities.
Explanation of the answer including the major differences between EBITDA and the section of the statement of cash flows that you chosen.
The main difference between operating activities section and EBITDA is of working capital changes that is decrease and increase in the current assets and current liabilities of a business organization.
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