Free Cash Flow, CapEx, and ROE in Public Contracting: A Scorecard for Owners Who Think EBITDA Is Cash

EBITDA Is Not Cash

Revenue, gross margin, EBITDA and cash flow answer different questions. The operator test is whether the monthly close can explain why a profitable month increased or depleted the bank balance.

EBITDA, earnings before interest, taxes, depreciation and amortization, is one valuation and debt-underwriting input. Buyers also model free cash flow and debt-service capacity. Here, comparable FCF means operating cash flow minus cash purchases of property and equipment. It is not cash remaining after every acquisition, loan repayment or financing lease payment.

The gap between EBITDA and free cash flow is where a lot of contractor owners get surprised during diligence.

The Public Company Scorecard

Here's how five publicly traded MEP and specialty contractors performed in FY2025 on the metrics that matter beyond EBITDA margin:

Sources: FCF, cash equipment purchases, income/equity and SG&A use the five FY2025 filings linked below. The EBITDA column additionally uses Comfort Systems' earnings release, Limbach's FY2025 earnings exhibit and the IES earnings release linked below; APi reports adjusted EBITDA in its 10-K. EMCOR is the Level-calculated proxy explained below. Comparable FCF = operating cash flow minus cash purchases of property and equipment, excluding proceeds from asset sales. Comfort Systems reports its own FCF including asset-sale proceeds, so its issuer figure differs. These are historical fiscal-year observations, not current trading data. IES ends its fiscal year on September 30; the other four end on December 31. Comfort Systems, APi, IES and Limbach use issuer-adjusted non-GAAP EBITDA, whose adjustments differ. EMCOR uses a Level-calculated operating-income-plus-operating-D&A proxy, defined below. Do not treat the column as one standardized accounting measure or the difference from FCF as entirely working-capital loss.

What the EBITDA Column Actually Measures

EMCOR's 11.2% is (operating income $1,713.418M + PPE depreciation/amortization $67.368M + acquired-intangible amortization $119.052M) / revenue $16,986.422M. Operating income includes a $144.876M gain on the sale of UK operations. Removing only that gain gives a separate 10.3% sensitivity, not an issuer adjusted-EBITDA measure. Keep that one-time gain visible before comparing the margin with recurring private earnings.

IES's 13.0% is issuer-reported adjusted EBITDA of $437.5M divided by $3,371.5M of revenue in its FY2025 earnings release. The unaudited, rounded release reconciliation adds $12.9M of noncash equity compensation to $424.6M of EBITDA. An operating-income-plus-D&A calculation from the audited annual filing instead gives 12.8%. The two ratios answer different questions; neither should silently replace the other.

Free Cash Flow: The Real Measure of Financial Health

Comfort Systems generated $1.03B in free cash flow on $9.1B in revenue, an 11.3% FCF margin. That is 11.3 cents of operating cash flow less cash equipment purchases per revenue dollar, before acquisitions, debt principal, financing lease payments and other cash demands. Distribution capacity also depends on covenants and a dated cash forecast.

The range across the group is 6.5% to 11.3%. That's the range for these five public companies in one fiscal year, not a measured private-contractor benchmark.

Why FCF matters more than EBITDA:

EBITDA omits cash demands including:

1. Capital expenditures: trucks, equipment, tools, office buildouts
2. Working capital changes: cash tied up in AR, inventory, prepaid expenses
3. Taxes, with the entity and owner boundary matched
4. Cash interest, which matters when borrowing funds the work

For a pass-through private entity, owner income taxes can leave as distributions rather than operating cash flow. Match that boundary before comparing with these public C corporations.

Fictional example: a contractor with a 15% EBITDA margin spends 5 points of revenue on capex, about 3 points on cash taxes and interest, and ties up about 3.5 points of revenue in a growing AR balance. That leaves about a 3.5% FCF margin (15 minus 5 minus 3 minus 3.5). That's a business that looks profitable on paper but can't fund its own growth.

Capital Intensity: How Light These Businesses Run

The most striking number in this dataset is capex as a percentage of revenue:

On cash purchases of property and equipment, these businesses look capital-light: Limbach's cash purchases were $3.8M on $647M of revenue, excluding finance-lease vehicle additions; EMCOR's were $113M on $17B. These figures do not measure total economic asset investment.

What this means for private contractors:

Before comparing, make the numbers like-for-like. Cash purchases in the investing section exclude noncash financed additions and lease payments recorded elsewhere. Counterexample with two fictional $10M contractors, each running 20 trucks: one buys four replacement trucks for $75K each, or $300K of cash capex this year (3.0% of revenue). The other leases all 20 for $15K each per year, also $300K of current cash outflow, but no cash purchases in the capex line. This is a one-year cash illustration, not a full ownership-cost comparison: remaining truck lives, residual values, lease terms and future replacement spending differ. Inspect the fleet register, lease obligations and maintenance-versus-growth investment on both sides. Adding leases to your ratio while leaving the public ratio unadjusted does not make the comparison fair. A 5% cash-capex year can reflect catch-up or growth investment; it is not proof of over-capitalizing.

PE firms model capex as a percentage of revenue when they project future cash flows. If your historical capex is 5% and the public comps above run at 0.6-2.0%, a buyer may ask two questions. Is the 5% growth or catch-up spending that will fall? Or is it a structurally capital-heavy model that will continue, so the higher capex belongs in their projections? A shop with unusually low capex can face the opposite question: whether it has been under-investing, in which case future capex gets added to the model.

Return on Equity: What Your Capital Actually Earns

ROE relates annual net income to book equity on a stated ownership basis. It is not a return on the owner's original cash investment: retained earnings, distributions and acquisition accounting change book equity.

Comfort Systems' 41.8% is FY2025 net income divided by year-end book equity. Using the simple average of its opening and closing equity gives 49.2%. The denominator convention changes the answer without changing the business. Book equity reflects accumulated earnings, distributions, repurchases and acquisition accounting; it is not simply the cash an owner invested.

ROE uses net income divided by equity, not total debt plus equity. Acquisition accounting, issued equity, goodwill and amortization can affect its numerator and denominator differently; debt alone does not explain the reported 8.9% ratio. Read the filing's net-income bridge and average-equity basis before attributing the difference to one cause.

For private contractors: Most owner-operators can't cleanly calculate ROE because they blend personal and business equity. But the concept matters, especially during PE diligence. If you have $2M in equity and your business generates $200K in net income, that's 10% ROE. A buyer may compare that with the stated 8.9% to 41.8% income-to-closing-equity range above, but must match ownership and equity conventions first. APi's 8.9% uses total net income and total equity, not income available to common shareholders.

Reconcile the numerator and denominator before explaining the gap. Below-market owner pay inflates income, above-market pay depresses it, and accumulated retained earnings increase equity. Distributions reduce equity and can increase the ratio without improving operating profit. Family payroll needs a role and market-pay review, not an automatic add-back.

SG&A: The Overhead Question

SG&A (selling, general, and administrative expenses) as a percentage of revenue varies dramatically across this group:

• Comfort Systems: 9.7%: reported SG&A at $9.1B revenue, not proof that scale caused the ratio
• EMCOR: 10.1%: reported SG&A at $17B; being larger did not produce a lower ratio than Comfort Systems
• IES Holdings: 14.1%: moderate overhead with diversified segments
• Limbach: 16.9%: mid-cap overhead on $647M revenue
• APi Group: 24.4%: inspect cost classification and acquired-business accounting before attributing the difference to inspection or monitoring

For private contractors, we use the overhead ranges below as illustrative planning assumptions by revenue size. They are not published Level Index measured percentiles, and their source sample is not stated here. See the Level Index for metrics that carry a measured sample:

• Under $3M revenue: 25-35% overhead
• $3-10M: 20-28%
• $10M+: 15-22%

If you're a $10M contractor running 25% overhead, you sit inside the $3-10M planning band but above the $10M+ band, so check which band your trailing revenue actually puts you in. Limbach, the smallest company in the public table at $647M of revenue, runs 16.9% SG&A. It is more than 60 times the size of a $10M contractor, so this is not a like-for-like comparison. Public SG&A and private overhead also may not include the same costs; owner compensation and some field supervision are common differences. Match definitions before reading a gap. A buyer may still treat the gap as a possible cost opportunity.

The Balance Sheet: Debt and Cash

The balance-sheet dates are December 31, 2025, except IES, which is September 30. Amounts above are rounded millions; net debt is reported debt less cash and equivalents. The debt definitions differ:

• Comfort Systems: $145.226M of borrowed debt; $338.132M of operating lease liabilities is separate. Cash excludes separately disclosed Treasury bills.
• IES: no borrowed debt, but $7.594M of finance lease obligations and $88.095M of operating lease obligations remain. Its $104.587M of marketable securities is separate from the cash shown.
• Limbach: $35.921M includes $20.570M of finance leases, a $5.351M financing liability and a $10M revolver. Cash excludes $0.065M of restricted cash.
• APi: $2,759M is carrying debt after $17M of financing costs, versus $2,776M of gross obligations. Separate finance leases of $9M are excluded.

These rows reproduce reported definitions; they are not harmonized total-financing-obligation comparisons. The 0.3x and 1.8x ratios use Limbach's and APi's issuer-adjusted EBITDA respectively. Comfort Systems and IES have more cash than the borrowed-debt figures shown, which does not mean all of that cash is available to distribute.

APi Group reports $2.8B of carrying debt, mainly a term loan and senior notes. The cited 1.8x net-debt/EBITDA ratio addresses leverage, a separate measure from ROE. Assess financing costs and the actual income/equity calculation rather than treating this ratio as an explanation of ROE.

For private contractors: as an illustrative planning assumption, not a sourced market statistic, assume an acquisition financed at 3-4x debt / EBITDA. Under that assumption, $1M of EBITDA would carry $3-4M of debt. Your FCF needs to service that debt, which is why PE cares about FCF, not EBITDA.

What to Do With This

Know your FCF: operating cash flow minus capex, matching the table's definition. Starting from EBITDA instead: EBITDA minus cash taxes, minus cash interest, minus increases in working capital (or plus decreases), minus capex. If you don't know this number, you don't know your financial health.

Benchmark your capex: Treat 2-3% of revenue as an illustrative review trigger, not an industry ceiling. Compare reported cash purchases first; then compare leases, financed additions, asset age and growth investment on the same basis for both businesses. Is it growth investment or maintenance? PE will ask.

Calculate your cash conversion: EBITDA margin minus FCF margin = the "leakage" between profit and cash. The displayed EBITDA measures exceed FCF margin by about 4.2 to 6.5 percentage points. That arithmetic mixes issuer adjustments and cannot diagnose a cash leak by itself. Build your own bridge from consistently defined EBITDA through cash taxes, interest, working capital and cash purchases; inspect lease financing and one-time items separately.

Track ROE: Even a rough calculation (net income / owner's equity) tells you whether your capital is working. Compare it with alternatives at a similar risk level and on the same accounting basis. A 15% hurdle is illustrative, not a market standard. Normalize owner pay and use average equity before interpreting the return.

The full operating benchmarks for all five public contractors are in the contractor Level Market Monitor, a dated edition drawn from SEC filings. Check the displayed financial period and market-data date before using it.

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Reproduce the Five-Company Cash and Equity Ratios

Download the unrounded input data or spreadsheet-ready CSV. Each row supplies the fiscal year-end, currency scale, operating cash flow, cash equipment purchases, matched net-income and equity basis, and primary filing URL. The export covers cash and equity ratios, not every earnings or valuation figure on this page.

The three checks are: (operating cash flow - cash equipment purchases) / revenue, cash equipment purchases / revenue, and net income on the stated ownership basis / year-end equity. Multiply by 100 for percentages. Average-equity return instead divides by (opening equity + closing equity) / 2; it is a separate result.

APi's ratios above use total net income of $302M and total equity. Income available to common shareholders was negative $288M after $590M of preferred dividends. Calling the 8.9% figure common-shareholder ROE would be wrong. EMCOR and IES use parent income and parent equity; do not insert consolidated equity or income including noncontrolling interests on just one side.

Limbach's $3.807M cash equipment purchases exclude financed vehicle additions and related financing payments. Comfort Systems' comparable FCF here is $1.031453B; its issuer calculation adds $3.695M of asset-sale proceeds to produce $1.035148B. Those differences explain why an accounting-consistent comparison needs line items rather than copying a reported ratio.

Primary filings: Comfort Systems, EMCOR, APi Group, IES Holdings, and Limbach.

FAQ

Q: What's a good FCF margin for a private contractor?

The five public contractors above ran 6.5-11.3% in FY2025. This page has no measured private-contractor FCF benchmark. As an illustrative planning assumption, an owner might set a 5-10% target. A single year below 3% is a prompt to check whether working capital, capex or taxes absorbed the cash, not a verdict on its own. Below-market or above-market owner pay also changes private FCF.

Q: Why does capex matter for my valuation?

Because buyers model future cash flows, not just past profits. If your business requires $500K in annual capex to maintain operations, that's $500K less free cash flow every year. In a cash-flow valuation, the value effect is a multiple of that recurring amount, not $500K once. Fictional example: at an illustrative 5x multiple on free cash flow, $500K of recurring maintenance capex reduces value by about $2.5M. An EBITDA multiple does not deduct capex in its base, so buyers using EBITDA usually reflect capex in the multiple they choose. SDE, EBITDA and cash-flow methods are not interchangeable.

Q: What's the difference between EBITDA and free cash flow?

EBITDA = Revenue - COGS - SG&A, with any depreciation and amortization inside those lines added back (before interest, taxes, depreciation, amortization). FCF = Operating Cash Flow - Capital Expenditures. The gap reflects working capital changes (AR, AP, inventory), cash capex, cash interest, taxes and other non-EBITDA operating cash items. FCF can exceed EBITDA when working capital releases cash; that release may not recur. Compare the cash-flow bridge, interest, tax and capex rather than assuming a fixed ordering.

Q: How do I improve my free cash flow?

Three levers: (1) Collect faster, reduce DSO by invoicing sooner and enforcing payment terms. A DSO reduction releases cash once; it does not raise FCF by the same amount every year. Check contract and lien notice deadlines first, because they override any internal aging playbook. (2) Match equipment spending to backlog and evaluate used purchases, ownership and leases on total cash cost. Leasing can lower the capex line while moving cash outflow elsewhere; it does not automatically improve economic cash flow. (3) Manage working capital, don't let AR grow faster than revenue, negotiate better payment terms with suppliers.