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The last year and the current TTM has negative cash flow. Also, why would anyone chose ev to EBITDA multiple for valuation? Especially for a company that is capital Intensive and cyclical? The money provided by depreciation will be used and some more by new capital needs. Being cyclical margins will be all over along with revenue but interest and depreciation costs remain same irrespective of where you are in the cycle.

Both are rules of thumb. I actually prefer to model out the cash flows and then normalize them a bit as Precision's capex is largely expansionary and demand driven. Cash flow will have its ups and downs, of course, but the maintenance capex here isn't much and if the contracts dry up, so will the expansion capex.

Free cash flow has been negative of late, because of the demand for new rig builds. But I was talking about plain cash flow or operating cash flow here. Again, as a rule of thumb as I don't expect everyone out there to be building models.

EBITDA is a far from perfect metric, but it is a good rough indicator of operating cash flow for Precision.

As a general rule when coupled with enterprise value, EBITDA is quite handy for comparing similar companies. It definitely has its warts and its not a good tool for absolute valuations, but for relative valuations ev-to-ebitda is actually quite a bit more useful than P/E because it takes financing decisions into account. As imperfect as it is, companies often shake out fairly logically in comparison to each other on this metric.

I don't, however, recommend getting wrapped up in EBITDA growth from year-to-year, etc.


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