Formula
Owner Earnings = Net Income + Depreciation and Amortization - Maintenance Capex
Workflow
1
Start with net income and add back non-cash depreciation charges.
2
Subtract maintenance capex needed to preserve the business.
3
Capitalize owner earnings using conservative return and growth assumptions.
Best Used For
- Businesses with recurring cash generation and understandable reinvestment needs.
- Quality-focused intrinsic value checks where accounting profit may be noisy.
Limitations
- Maintenance capex is often estimated, not directly reported.
- Small changes in discount and growth assumptions can move fair value sharply.