FactorSage

Intrinsic Value · Lesson 1.3

Owner Earnings

Owner Earnings, popularised by Warren Buffett, is the cash a business genuinely generates for its owners after maintaining its competitive position.

What Owner Earnings tries to capture

Net income includes accounting items that do not reflect real cash. Owner Earnings adjusts net income for depreciation, working capital changes, and maintenance capex so the result is closer to the cash an owner could actually distribute.

Owner Earnings ≈ Net Income + D&A − Maintenance Capex − ΔWorking Capital

When this model is useful

  • Capital-light businesses where reported earnings are reasonably close to cash flow.
  • Mature businesses where growth capex is small relative to maintenance capex.
  • Comparing a company's cash generation across years without depreciation noise.

Using Owner Earnings in FactorSage

Owner Earnings appears in the strategy builder as OWNER_EARNINGS_VALUE and OWNER_EARNINGS_VALUE_TTM. It is available on Starter and above as an annual model, and on Pro as a TTM variant. Use it alone or blend it with DCF to dampen single-model assumption risk.

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