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CHAPTER 6 Stock Research Checklist—Earni... > What Are the Company’s Owner Earning...

What Are the Company’s Owner Earnings for the Past 10 years? Does It Grow Consistently?

Buffett uses the term “owner earnings.” These are the earnings the owner can keep after the capital expenditure. Here is the formula to calculate the owner earnings.

Owner earnings = Net income + Depreciation & Amortization − Capital Expenditure

We can add depreciation and amortization non-cash expenses to the net income and subtract the capital expenditure to yield the owner income. If the owner income trend increases over time, you can project the approximate owner income for the future. But, remember, this number is not going to be perfect.

We can calculate the owner earnings of the examples.

KO owner earnings increase for last 10 years:

c06ue007

c06ue008

Owner income growth rate I = 10.59 percent for the last 10 years


  

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