Sportech CFO Tom Hearne believes EBITDA is becoming “less and less important" as a performance indicator for public gaming firms.
Speaking exclusively to Gambling Insider, Hearne described cash flow as a more useful measure, assessed frequently by "the smart investors" in the current market.
While EBITDA features prominently on many financial reports within the gaming sector, alongside staple measures like revenue and net profit, Hearne feels more emphasis will be placed on cash flow as time progresses.
When asked how EBITDA compares to revenue in importance, he explains: “I think the question does make sense and, particularly with some of the changes in the accounting rules over the last year, I think EBITDA is becoming a less and less important measure.
“We have expanded our KPIs to include significant KPIs like operational cash flow. At the end of the day, businesses talk about EBITDA a lot but the smart investors always look at cash flow. You have to be able to understand how revenue relates to cash."
For Sportech, a focus on cash flow is part of the company's effort to digitalise the business, an extremely relevant topic at present due to the closure of so many land-based and retail outlets during the coronavirus pandemic.
Hearne says: “For us, one of the key drivers in the business is digitalising our business and helping our customers digitalise, to help our customers build better margins, making it less capital intensive than it used to be.
“Last year, our capital costs came down significantly and our operational cash flow increased.
“Those are the KPIs we focus on as we grow our business and I think they will become as important – or more important – than EBITDA.”
Hearne also spoke with Gambling Insider in depth about Sportech's annual results after they were published.