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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Think4Yourself who wrote (82530)	12/22/2000 9:31:59 PM
From: Razorbak	Read Replies (1) \| Respond to of 95453

CFPS and EBITDA Q: I agree with the first part, but not the second. IMO, CFPS is a better valuation indicator than earnings because one is pure cash and the other is an accrual. That's why discounted cash flow analyses (e.g., Net Present Value) start with net earnings and then add/deduct all non-cash items to get back to pure cash flow, which is then discounted back to present value. I don't agree with the second part of your post, that EBITDA numbers are misleading. As long as you compare EBITDA and Enterprise Value (debt + equity), you negate the potential distortions that can be caused by the interest expense (a measure of total leverage) and the non-cash expenses (depreciation and amortization). I hope that makes sense. Razor

To: Think4Yourself who wrote (82530)	12/22/2000 11:30:05 PM
From: jim_p	Read Replies (1) \| Respond to of 95453

John, One of the main reasons cash flow is used in place of earnings is because of the two different methods of accounting for oil and gas expenses, full cost vs. successful efforts. Earnings vary from company to company depending on which method you use. It would not be fair to compare the earnings of one company to another if one expenses their dry hole costs and the other capitalizes it. As a result, when comparing oil and gas companies you use earnings before non-cash expenses so you are comparing apples to apples. Back when Clarence Samson was the chief accountant of the SEC, I argued the merits of changing to full cost from successful efforts with the SEC and won. As a result, all oil and gas companies were allowed to make a one time change to either method. Jim