EBITDA is not spendable cash

EBITDA is not spendable cash, it still has real cash costs sitting below it before anything can go toward debt paydown.

EBITDA → cash → debt paydown

The four deductions

Getting from EBITDA to free cash flow means subtracting: interest (the cost of the acquisition debt itself), tax, capex (capital spending, servers, equipment, capitalized product development), and the change in working capital (cash tied up in, say, receivables growing faster than payables). Whatever survives all four is what's actually available to pay down debt.

Every deduction is real cash leaving before anything reaches debt paydown.
  • Meridian: £20m EBITDA − £6m interest (on the £96m of debt from Lesson 15) − £3m tax − £4m capex − £1m working-capital build = £6m of free cash flow in a typical year, the actual annual paydown capacity behind Lesson 16's £30m-over-five-years example.

Checkpoint

  • Free cash flow: EBITDA minus interest, tax, capex, and the change in working capital, what's actually left to pay down debt.
  • Strong EBITDA: can still mean little free cash flow if interest, capex, or working capital needs are heavy.

If anything here still feels unclear, ask before moving to Lesson 18.