Owner Earnings (Buffett Method): Valuation for Long-Term Investors
Owner earnings explained: what it means, why Warren Buffett uses it, and how investors use owner earnings to estimate intrinsic value.
What are owner earnings?
Owner earnings are a Buffett-style way to think about the cash a business can distribute to owners without harming its competitive position. It's closely related to free cash flow, adjusted for maintenance reinvestment needs.
Why investors like it
- Anchors valuation to cash generation (not just accounting earnings)
- Highlights capital intensity and reinvestment requirements
- Pairs well with intrinsic value frameworks and margin of safety
How it connects to intrinsic value
Many intrinsic value methods discount future cash flows. Owner earnings is a practical way to define the cash flow stream you're valuing.
Use owner-earnings thinking on real stocks
Browse stocks and look at fundamentals, then compare price vs value.
FAQs
Is owner earnings the same as free cash flow?▼
They are related. Owner earnings adjusts for maintenance capex and working capital needs to reflect sustainable cash available to owners.
Why not just use net income?▼
Net income is an accounting measure. Cash flow often better reflects a business's ability to return money to shareholders over time.
Related
Intrinsic Investor is for education and research only. Not financial advice.