A company has had positive EBITDA for the past 10 years, but it recently went bankrupt. How could this happen?

How to answer

Several possibilities: 1) The company had high interest expense and could not meet its debt obligations — EBITDA excludes interest, so positive EBITDA does not mean the company can service its debt. 2) The company may have had significant one-time cash expenses (e.g., legal settlements, restructuring) that drained liquidity. 3) It may have had large mandatory CapEx or debt repayments that consumed all operating cash flow. 4) A large working capital increase could have consumed cash even while EBITDA was positive. 5) The company may have had a debt maturity or covenant breach that triggered acceleration of debt payments. The key lesson: EBITDA is not cash flow. A company can be "profitable" on an EBITDA basis but still run out of cash.