Final answer:
Companies may choose between adjusted EBITDA and free cash flows based on the dimension of performance they're assessing. Adjusted EBITDA is useful for profitability comparisons, while free cash flows provide a measure of actual cash available. Markets tend to reach equilibrium effectively but can be disrupted by various factors.
Step-by-step explanation:
The decision on whether companies should use adjusted EBITDA or free cash flows depends on what aspect of a company's performance is being evaluated. Adjusted EBITDA can be useful for comparing profitability across different companies by removing the effects of financing and accounting decisions; however, it does not account for the capital expenditures required to maintain or expand the business. On the other hand, free cash flow provides insight into the actual cash that is available for expansion, dividends, or reducing debt, making it a strong indicator of the company's ability to generate cash and its financial health.
Regarding market equilibrium, markets are generally considered effective at reaching equilibrium through the forces of supply and demand. Prices fluctuate based on the collective decisions of buyers and sellers, moving towards a balance where the quantity supplied equals the quantity demanded. However, this balance can be disrupted by factors such as government interventions, external shocks, and market imperfections.