When working capital is growing, it means that the company is investing more in current assets  or reducing current liabilities . This growth in working capital ties up cash within the business. In other words, the company is using more cash for its day-to-day operational needs.

EBITDA does not account for changes in working capital. It’s a measure of profitability before considering these changes. therefore  EBITDA doesn’t reflect the impact of increased investment in working capital or the cash tied up in it.

So, if a company’s working capital is growing, EBITDA may make the company’s operating performance look better than it actually is in terms of generating cash. EBITDA will be higher because it doesn’t consider the cash outflows associated with growing working capital. However, the company may still be facing a cash crunch because it’s using more cash to support its operations, which isn’t reflected in the EBITDA figure.

hope u understand

To get a more accurate picture of a company’s cash flow from operations, one needs to look at the cash flow statement, which takes into account changes in working capital. It shows how much cash is actually flowing in or out of the company as a result of its day-to-day operations, investments, and financing activities. This statement provides a more precise view of a company’s liquidity and its ability to meet its financial obligations, which EBITDA alone may not reveal when working capital is growing.