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Profitability analysis of Pinnacle Entertainment

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Measuring operating performance

Earnings before interest, tax, depreciation, and amortization (EBITDA) is a cash flow measure that ignores changes in working capital. Pinnacle Entertainment (PNK) uses adjusted EBITDA to assess its operating performance.

The chart above shows PNK’s adjusted EBITDA since 2010. The compound annual growth rate (or CAGR) of adjusted property EBITDA over a three-year period ending on December 31, 2013, stood at 20.2%. PNK’s adjusted property EBITDA for the trailing twelve months (TTM) was $576 million with an improved margin of 26.3%. Margin is an important indicator because it shows how profitable a company’s business is.

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Return analysis

Return on assets (or ROA) is net income divided by total assets. ROA denotes how effectively company management generates income by using all of the assets at its disposal. This ratio helps companies to evaluate the performance of management and different departments over time.

The chart above shows that Pinnacle Entertainment (PNK) has the highest ROA of 1% relative to its peer group. PNK’s peer group comprises Boyd Gaming (BYD), Caesars Entertainment (CZR), and Penn National Gaming (PENN), all of which have negative ROA. ETFs (or exchange-traded funds) like VanEck Vectors Gaming (BJK) provide access to these leisure companies.

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