Owner's Earnings

Warren Buffett popularized a calculation called Owner’s Earnings. This calculation is used to determine how much actual cash a company can produce for a true owner. It accounts for non-cash entries like goodwill, depreciation, or huge pension returns. These discounts should be considered buy signals for companies with consistent growth. The discounts means very little for inconsistent growers and heavily cyclical companies. Here are some example calculations 9using Oct 8 prices):


Company Ticker: DEO
1) Operating Profit - 1,556
2) +Depreciation - 210
3) +Amortization of Goodwill - 0
4) -Average Federal Income Tax - 678
5) -Cost of Stock Options - 0
6) -Essential Capitol Expenditures - 300
7) -Extra Income from High Pension Returns - 0
= OE
8) x Discount Rate (8-10%)
63.04 Million = Est. Market Cap
58.53 Million = Actual Market Cap
7.15% = Discount (Premium)


Company Ticker: PCL
1) Operating Profit - 317
2) + Depreciation - 128
3) + Amortization of Goodwill - 0
4) - Average Federal Income Tax - 13
5) - Cost of Stock Options 0
6) - Essential Capitol Expenditures - 87
7) - Extra Income from High Pension Returns - 0
345 = OE
8) x Discount Rate (8-10%)
27.6 Billion = Est. Market Cap
7.52 Billion = Actual Market Cap
72.75% = Discount (Premium)


Company Ticker: FII
1) Operating Profit - 197.73
2) + Depreciation - 24.11
3) + Amortization of Goodwill - 0
4) - Average Federal Income Tax - 113.72
5) - Cost of Stock Options - 0
6) - Essential Capitol Expenditures - 4.75
7) - Extra Income from High Pension Returns - 0
103.37 = OE
8) x Discount Rate (8-10%)
8.27 Billion = Est. Market Cap
4.17 Billion = Actual Market Cap
49.57% = Discount (Premium)


Company Ticker: JOE
1) Operating Profit - 51.02
2) + Depreciation - 40.36
3) + Amortization of Goodwill - 0
4) - Average Federal Income Tax - 25.16
5) - Cost of Stock Options - 0
6) - Essential Capitol Expenditures - 14
7) - Extra Income from High Pension Returns - 0
52.22 = OE
8) x Discount Rate (8-10%)
4.17 Billion= Est. Market Cap
2.53 Billion = Actual Market Cap
39.32% = Discount (Premium)