Why does EBITDA rise while liquidity falls?
A higher EBITDA can coincide with a falling bank balance because earnings and cash movements are different quantities. Receivables and inventories can tie up funds; investments and loan repayments trigger payments. A traceable cash bridge explains which changes sit between earnings and the bank balance.
For a finance operating partner, three things count alongside the earnings trend: where funds are tied up, which payments are due, and who is working on the causes. This article shows a worked example and the next review steps.
Straight to the section: Worked example · Five review steps · Which support fits?
Worked example: more EBITDA and still 55,000 euros less cash
Fictitious data, all amounts in thousand EUR. The EBITDA of a portfolio company rises from 60 in the previous month to 80 in the current month. The same group of entities and the same earnings definition are compared. The bank balance develops as follows in the current month:
- Bank balance at the start of the month: 500.
- EBITDA of the current month: +80.
- Additional working capital tied up: −60.
- Investments paid: −30.
- Taxes and interest paid: −25.
- Loan repayment: −20.
- Bank balance at the end of the month: 445.
The calculation is 500 + 80 − 60 − 30 − 25 − 20 = 445. EBITDA is up 20 on the previous month; the bank balance is down 55 in the current month. Both can be true at the same time. Other non-cash adjustments, operating balance sheet movements and financing effects are zero in the example.
The sample board pack with Excel file shows this reporting month including the plan-actual comparison and actions. The EBITDA plan of 150 used there is a different benchmark from the previous-month value of 60 added here.
What typically causes the gap?
Revenue was recognised, customers have not paid yet
A higher receivables balance can come from growth, longer payment terms, late invoicing or disputed deliveries. The causes call for different actions. An open invoice is not automatically overdue. In the example, receivables rise by 40 and inventories by 20, while trade payables stay unchanged.
Investments and financing act outside EBITDA
Investments paid and loan repayments can reduce the bank balance without reducing the EBITDA of the same month by the same amount. Interest and tax payments also belong in the reconciliation. Non-cash earnings effects and other operating balance sheet items are taken into account separately depending on the data basis.
An EBITDA adjustment does not create a cash receipt
If a one-off expense is excluded from adjusted EBITDA, that has not automatically created cash. If the invoice was already paid, the outflow remains. Operating EBITDA, the adjusted metric and the cash bridge each need a clear definition.
Five review steps for the next finance review
- Align the scope: do period, entities, currencies and EBITDA definition match? Acquisitions, exchange rates and reclassifications can distort balance comparisons.
- Reconcile bank balances: take opening and closing balances from bank statements. Show restricted cash separately.
- Explain working capital: examine receivables, inventories and trade payables by movement and cause. Add other operating balance sheet items.
- Allocate the remaining payments: record investments, taxes, interest and financing individually. An unexplained difference gets an owner rather than a catch-all balancing line.
- Add the outlook: the 13-week cash flow forecast shows the next payment dates and possible squeezes. A historical cash bridge does not replace this view ahead.
Which support fits the finding?
If reconciled accounts or traceable open items are missing, the work starts in interim accounting. If reliable actuals exist but analysis and forecast are missing, FP&A support fits. If tasks and data situation are unclear overall, a finance assessment with a prioritised findings report structures the start.
For actions in receivables, inventory and payables management, the article cutting working capital goes further. This article focuses on explaining the earnings-cash gap.
Describe your earnings-cash gap and the next reporting date. To get started, the period, the group of entities and a description of the problem are enough.
Frequently asked questions
Is a positive EBITDA proof of sufficient liquidity?
No. Payment timing, working capital, investments and financing can change the available bank balance considerably. What is needed are reconciled balances and a current cash forecast.
Can I take adjusted EBITDA straight into the cash bridge?
Only with a complete reconciliation of the adjustments and their actual cash effect. An earnings adjustment must not automatically be treated as additional cash received.
Technical basis
The figures and review steps are an independent fictitious working example by nugrow. The IFRS Foundation on IAS 7 explains the separation of operating, investing and financing cash flows and the treatment of non-cash effects. The management bridge shown here is not a complete cash flow statement under an accounting standard. As of October 2026.
