Cash flow is a critical metric to pay attention to when evaluating a company's ability to fund future growth. Earnings can sometime be a dubious calculation, but by eliminating non-cash operating items and taking financing into account, investors can get a great idea of the amount left for management to invest back into the business. Recent trends in the energy sub-industry of oil and gas drillers indicate that newer more high-specification fleets are all the rage.

After the Macondo spill at the hands of BP and Transocean, companies are more willing to offer contracts to drillers with the newest rigs and best selection of deepwater floaters and jack-up rigs that are capable of drilling in harsh environments and that can withstand turbulent weather systems. Drillers are recognizing this and are spending accordingly. 

Diamond Offshore currently has the highest free cash flow/shareholder in the drilling industry. It also has only 41 rigs, with only one deepwater drillship, so it lacks the fleet size to match its larger competitors, such as Ensco, Noble, Seadrill, and Transocean. But it's certainly following these companies' leads with regard to upgrading, having recently placed four orders for drillships with deepwater capability. 

Wisely deploying its cash in this manner is likely to reap handsome rewards as soon as these rigs are delivered and launched. For more, see the following video.

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