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Last updated: April 2026

EARNINGS POWER VALUE METHODOLOGY

EPV - A no-growth valuation that capitalizes normalized operating earnings.
Formula

EPV = Normalized After-tax EBIT / WACC

Workflow

1

Estimate normalized operating profit across a representative period.

2

Convert EBIT to after-tax earnings and divide by WACC.

3

Subtract net debt and divide by shares for equity value per share.

Best Used For

  • Mature companies where current earning power matters more than long-term growth.
  • A cross-check against DCF models with aggressive growth assumptions.

Limitations

  • Understates value when durable reinvestment opportunities are material.
  • Sensitive to normalized margin and WACC assumptions.
Required Inputs
  • Normalized EBIT, tax rate, WACC, net debt, and shares outstanding.
  • Adjustments for unusual margins, cycles, or one-off expenses.
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