The use of EBITDA and related ratios as a single measure of cash flow without consideration of other factors can be misleading. 

• EBITDA is probably best assessed by breaking down its components into EBIT, Depreciation, and Amortization. Generally speaking, the greater the percentage of EBIT in EBITDA, the stronger the underlying cash flow.
• EBITDA is relevant to determining cash flow in its extremis. EBITDA remains a legitimate tool for analyzing low-rated credits at the bottom of the cycle. Its use is less appropriate, however, for higher-rated and investment grade credits particularly mid-way through or at the top of the cycle.
• EBITDA is a better measurement for companies whose assets have longer lives – it is not a good tool for companies whose assets have shorter lives or for companies in industries undergoing a lot of technological change.
• EBITDA can easily be manipulated through aggressive accounting policies relating to rev­enue and expense recognition, asset write downs and concomitant adjustments to deprecia­tion schedules, excessive adjustments in deriving “adjusted pro-forma EBITDA,” and by the timing of certain “ordinary course” asset sales.

The ten critical failings of using EBITDA are the following:

• Ignores changes in working capital and overstates cash flow in periods of work­ing capital growth
• Can be a misleading measure of liquidity
• Does not consider the amount of required reinvestment – especially for compa­nies with short lived assets
• Says nothing about the quality of earnings
• Is an inadequate standalone measure for comparing acquisition multiples
• Ignores distinctions in the quality of cash flow resulting from differing account­ing policies, and not revenues are cash
• Is not a common denominator for cross border accounting conventions
• Offers limited protection when used debt covenants
• Can drift from the realm of reality
• Is not well suited for the analysis of many industries because it ignores their unique attributes