A company had positive EBITDA over many years but recently went bankrupt. Which factor is most consistent with this outcome?

• A. CapEx spending not reflected in EBITDA leading to cash-flow problems
• B. Very low interest expense and easy debt refinancing
• C. No one-time charges or litigation costs
• D. Strong cash reserves and no debt maturities

Answer: (A)

EBITDA measures operating profitability and excludes cash outlays for capital expenditures, so a company can look profitable on the income statement while actually burning cash. When a business makes large, ongoing CapEx—spending on facilities, equipment, or technology—that cash is not captured in EBITDA. If those cash outflows are substantial, they can erode free cash flow and drain liquidity, eventually leading to solvency issues or bankruptcy even though EBITDA remained positive for years. The other factors would typically reduce bankruptcy risk: low interest expense and easy debt refinancing would improve liquidity, the absence of one-time charges or litigation costs would not drive bankruptcy, and having strong cash reserves with no debt maturities would also support survival. Thus, CapEx not reflected in EBITDA aligns with the observed outcome.