Cash Flow Metrics Comparison

EBIT EBITDA EBITDAR Net Income NOPAT / NOPLAT

aka Operating Income Net Profit Tax-Effected EBIT

Operating Income + D&A

Calculation On Income Statement Operating Income + D&A On Income Statement EBIT * (1 T)
+ Rent Expense

Adjusted Enterprise
Valuation Metric Enterprise Value Enterprise Value Equity Value Enterprise Value
Value

Valuation
TEV / EBIT TEV / EBITDA Adjusted TEV / EBITDAR Equity Value / NI TEV / NOPAT
Multiple

Financial Equity, Debt, Preferred, Equity, Debt, Preferred, Equity, Debt, Preferred, Equity, Debt, Preferred,
Equity only
Stakeholders Govt, MI s/h Govt, MI s/h Govt, MI s/h MI s/h

Recurring sustainable Important for industries Similar but not equal to

Proxy for cash flow to all Profit to equity
profit from core in which there is a lease Net Income; as if no debt
financial stakeholders stakeholders after the
Explanation operations before the vs. buy decision in COGS, and interest, so pre-
before effects of capital effects of capital
effects of capital structure typically transport (but capital structure &
structure & leverage structure & leverage
& leverage not retail!) leverage

Does not add back D&A
Comparison vs.
since EBIT includes all
Other Metrics
legitimate expenses
Adds back D&A to better Allows comparison of Net figure, after all other Typically used in
approximate cash flow firms that buy vs. lease in stakeholders claims have Economic Analysis and
since D&A is non-cash the same industry been paid EVA for compensation

CapEx
Ignores CapEx Ignores CapEx Ignores CapEx Ignores CapEx Ignores CapEx
Relationship

Interest
Pre-Interest Pre-Interest Pre-Interest Post-Interest Pre-Interest
Relationship

Income Tax
Pre-Taxes Pre-Taxes Pre-Taxes Post-Taxes Post-Taxes
Relationship

Core vs.
Core Business Only Core Business Only Core Business Only Includes Non-Core $ Core Business Only
Non-Core

Credit Ratios Very important for interest Critical for Debt/EBITDA Sometimes important for
Not Important Not Important
Significance coverage and interest coverage financial covenant ratios

(1) include the effect of
CapEx and D&A
Use Case(s)
(2) also when CapEx /
D&A) is fairly significant
Cash flow based firms Same as EBITDA and (1) ROE, ROA, ROC, etc.
(services) and capital normalize the impact of (2) Exclude impact of Economic Value Added
intensive businesses buy vs. lease decisions in stock buybacks analysis
(manufacturing) same industry sector (3) Private company PE

(1) further removed from

(1) D&A is legit expense After the effects of
cash flow figure
(2) Excludes CapEx which Only relevant for some capital structure Somewhat irrelevant in
Pitfalls (2) Excludes CapEx which
reduces cash flow industries impossible to ascertain valuation context
reduces cash flow
(3) Includes MI s/h $ source of profitability
(3) Includes MI s/h $

Legend:
EBIT = Earnings Before Interest and Taxes; EBITDA = Earnings Before Interest and Taxes and Depreciation and Amortization; EBITDAR = EBITDA + Rent; T = tax rate
NOPAT = Net Operating Profit After Tax; NOPLAT = Net Operating Profit / Loss After Tax; FCFF = Free Cash Flow to Firm; FCFE = Free Cash Flow to Equity

TEV = Total Enterprise Value; never use the acronym EV since it is unclear if it is in reference to Enterprise or Equity Value
Adjusted Enterprise Value = TEV + Off-Balance Sheet Operating Leases
TEV = Equity Value + Net Debt (excluding capital leases) + Preferred + Minority Interest (and in Oilfield Services & Equipment: + Investment in Affiliates)
MI s/h = Minority Interest shareholders; PE = Price / Earnings ratio; ROE, ROA, ROC = Return on Equity, Assets and Capital (Debt + Equity)

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 Cash Flow Metrics Comparison

FCFF FCFE NOI FFO AFFO

Adjusted FFO, CAD or FAD
aka Unlevered Free Cash Flow Levered Free Cash Flow Net Operating Income Funds from Operations (Cash/Funds Available for
Distribution)

EBIT * (1 T) + D&A Net Income + D&A Real Estate Revenue NI + D&A + Gains/Losses FFO recurring CapEx &
Calculation
CapEx + WC CapEx + WC + Debt Operating Expenses on Property Sales adjust Straight Line Rents

Valuation Metric Enterprise Value Equity Value Enterprise Value Equity Value Equity Value

Valuation Equity Value/ FFO Equity Value / AFFO

Not Meaningful Not Meaningful NOI / Cap Rate = TEV
Multiple (or Price per FFO / Share) (or Price per AFFO / Share)

Financial Equity, Debt, Preferred, Equity, Debt

Equity only Equity only Equity only
Stakeholders Govt, MI s/h Preferred, MI s/h

Net cash flow to Equity

Calculates discretionary
Explanation free cash flow to financial
stakeholders
Similar to EBITDA but for Measure of cash flow Measures operating cash
stakeholders after interest
real estate projects at designed by NAREIT in flow generated for a REIT
expense; easily
the property level and 1991 to address after providing for
manipulated via capital
REITs drawbacks of GAAP EPS operating CapEx
structure changes

Excludes any below the REITs are incentivized to

Comparison vs. Used primarily for DCF To be avoided at all costs; Includes CapEx vs.
line items; pre-capital capitalize expenditures
Other Metrics valuation models use upon penalty of death FFO and NOI
structure = good! to inflate FFO

CapEx
Incorporates CapEx Incorporates CapEx Ignores CapEx Ignores CapEx Incorporates CapEx
Relationship

Interest
Pre-Interest Post-Interest Pre-Interest Post-Interest Post-Interest
Relationship

Income Tax Pre-Taxes Pre-Taxes Pre-Taxes

Post-Taxes Post-Taxes
Relationship (REITs = pass-thru) (REITs = pass-thru) (REITs = pass-thru)

Core vs.
Core Business Only Includes Non-Core $ Core Business Only Includes Non-Core $ Includes Non-Core $
Non-Core

Credit Ratios Very important for

Not Important Not Important Sometimes Important Sometimes Important
Significance financial covenant ratios

Any project or entity that

Discounted Cash Flow
Use Case(s) Virtually none generates cash flow from Primarily for REITs Primarily for REITs
valuation
real estate ownership

Not true cash figure since Only relevant for REITs

starts with EBIT still
Pitfalls
subject to manipulation of
accrual accounting
Shows true operating Doesnt accurately reflect
To be avoided at all costs; that need to show cash
performance, but not cash generated or
use upon penalty of death flow performance given a
impact of financing dividend paying capacity
CapEx expectation

Legend:
EBIT = Earnings Before Interest and Taxes; EBITDA = Earnings Before Interest and Taxes and Depreciation and Amortization; T = tax rate
FCFF = Free Cash Flow to Firm; FCFE = Free Cash Flow to Equity

TEV = Total Enterprise Value; never use the acronym EV since it is unclear if it is in reference to Enterprise or Equity Value
TEV = Equity Value + Net Debt (excluding capital leases) + Preferred + Minority Interest (and in Oilfield Services & Equipment: + Investment in Affiliates)
MI s/h = Minority Interest shareholders; PE = Price / Earnings ratio; ROE, ROA, ROC = Return on Equity, Assets and Capital (Debt + Equity)
REIT = Real Estate Investment Trust; NAREIT = National Association of REITs

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