RE:RE:RE:RE:PetroTal is flush with cash!! Brent $50.00/organic growthTo my understanding, big invite to someone in this chat room that knows more that can elaborate, the best way to approach the EV/DAFC multiple value is to break it down into its individual parts.
- EV (Enterprise Value) is a company's total value that includes the market capitalization, short & long term debt, and balance sheet cash.
- Calculation is EV=Market Capitalization+Total Debt-Cash (Investopedia).
- DACF (Debt-Adjusted Cash Flow) is includes the cash flow from operations and the financing costs (after tax).
- Calculation is DACF=cash flow from operations+financing costs (after tax) (investopedia)
- EV/DACF – Many analysts prefer to use EV/DACF vs. P/CF as firms with higher levels of debt, or more leverage, will show a better P/CF ratio. This multiple takes the enterprise value and divides it by the sum of cash flows from operating activities and all financial charges that include interest expense, current income taxes and preferred shares (CanadianEnergyInsight).
Needless to say this is a fairly complex ratio and it is different from free cash flow. From what I can gather the smaller the ratio, the more pressure there is for the Market Capitalization/share price to increase in value. For example, if the EV=DACF the enterprise value would be underpriced. Due to the multiple components of this calculation, it does make sense it could give a false positive and should be used with care. Maybe someone could shed a little more light on this ratio?
References:
- https://www.investopedia.com/terms/e/enterprisevalue.asp
- https://www.investopedia.com/terms/d/dacf.asp
- https://www.canadianenergyinsight.com/og-financial-ratios.html