Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Canadian Oil & Gas Companies -- Ignore unavailable to you. Want to Upgrade?

To: RIK who wrote (4504)	1/15/1998 6:20:00 PM
From: Geoff Trueman	Read Replies (1) \| Respond to of 24927

All/ Cash Flow / Debt Adjustment I also believe that using a price to cash flow ratio can be very misleading. One of the methods I use to adjust for debt is to take a company's market capitalization (shares outstanding x current share price) and then add the amount of long term debt. This total capitalization is then divided by the number of BOEPD multiplied by the average cash flow netback multiplied by 365 days per year. Take Tarragon as an example. With a current share price of about $10 and nine months cash flow of about $2.00 per share, they are trading at about 3.75 times annualized cash flow. Now that might look cheap, but remember they are carrying long term debt of $415 million as at September 30, 1997. To account for this debt I take the total shares outstanding of 51 million multiplied by $10 per share and then add the debt of $415 million for a total capitalization of $925 million. This total is then divided by annualized cash flow of roughly $137 million, yielding a debt adjusted ratio of 6.75. It is intersting to note that even though TN trades at the lowest unadjusted cash flow multiple of its peer group -- PWT, RJL, NMC and NEN -- it trades at the highest debt adjusted ratio (probably because it has been successful in acquring and bringing on new natural gas production this year but that is just my interpretation). Anyway, I have found this debt adjustment formula to be quite useful in providing a more complete valuation picture for comparing companies that have varying debt levels and share structures.