Intrinsic Value Through Cash Flow Not Momentum

“I started to rely on a single powerful metric, almost like blood pressure in a human, that I thought could instantly, accurately reflect the health of a cable operator: cash flow. The shorthand for this metric would become known as EBITDA—“earnings before interest, taxes, depreciation, and amortization” (and pronounced “ee-bit-dah”). That is, earnings before we deducted all those expenses to lower our tax bill. Robust, tax-sheltered cash flow became the lifeblood for early cable operators, enabling them to manage big upfront capital and operating costs, service their debt, and invest in growth despite the long timelines often required to achieve profitability.”

“I had always looked at the cable-TV business as being fundamentally different from other industries, and more akin to the real estate business, where you buy property and collect rent or lease payments in the form of monthly fees. It was obvious to me that if we were going to be measured on earnings, it would be real tough to stay in the cable industry and grow. We needed to promote a different metric to get investors interested.”

“Intrinsic value is the present value of future cash flows.”

“a private market intrinsic valuation for a Graham value investor requires that the asset generate free cash flow.”