How can a company go bankrupt despite positive EBITDA?

How to answer

EBITDA excludes critical cash outflows that can sink a business: (1) Interest expense — heavily levered companies can be EBITDA-positive but cash-flow negative after debt service; (2) CapEx and working capital — capital-intensive businesses can show strong EBITDA while burning cash on maintenance and growth investment; (3) One-time charges — large litigation settlements, environmental liabilities, or pension shortfalls don't appear in EBITDA but require real cash; (4) Taxes — EBITDA is pre-tax. Example: a company with $100M EBITDA but $80M interest expense, $60M CapEx, and a $40M lawsuit settlement is hemorrhaging cash. EBITDA is a useful operating-margin proxy for valuation comparison but is NOT a substitute for free cash flow when assessing solvency. This is why credit analysts focus on Free Cash Flow, Interest Coverage, and Net Debt / EBITDA simultaneously.