Owner Earnings is a concept introduced by Warren Buffett in his 1986 Berkshire Hathaway letter as a more accurate measure of true economic earnings than reported net income. It adjusts net income for non-cash charges and maintenance capital expenditures to approximate the cash an owner could sustainably extract from the business — a preferred input for stock valuation.
A company reports net income of $100M, depreciation of $30M, and requires $25M in annual maintenance capex (keeping existing assets functioning). Owner earnings = $100M + $30M − $25M = $105M. This is more reliable than reported income for stock valuation purposes.
Reported depreciation often understates true economic wear on assets, and growth capex should be excluded from the earnings available to owners. Owner earnings corrects for these distortions, making it a more precise foundation for DCF stock valuation than GAAP net income.
MiniValuator uses free cash flow (OCF minus total capex) as its primary stock valuation input — a close approximation to owner earnings. Advanced users can manually adjust the FCF figure to apply Buffett's owner earnings concept to their stock valuation.
¿Listo para aplicar este concepto? Prueba la Calculadora DCF de MiniValuator — calcula el valor intrínseco de cualquier acción estadounidense en menos de 60 segundos.
