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Geoff Gannon
Geoff Gannon

Free Cash Flow vs. Owner Earnings: Which Matters More?

February 13, 2012 | About:

About the author:

Geoff Gannon
Geoff Gannon

Rating: 4.3/5 (32 votes)


Jayb718 - 3 years ago
Great article on the subject Geoff.
Benethridge - 3 years ago
What a clear, excellent explanation of "owner earnings". Thank you, Geoff!

Condo boards have to calculate a kind of "zero-dollar owner earnings" every year. A significant part of the equation is called the "capital reserve estimate" - future funding for roof replacement, exterior face-lifts, parking lot resurfacing, and so on. It's always a guess. The cost of guessing wrong (a) is called an "assessment" and (b) usually causes a loss of friends in the complex. :-)

"I'd rather be vaguely right than precisely wrong." — John Maynard Keynes

Penluck10 - 2 years ago
I love collecting stocks, all kinds of stocks.. doesn't matter to me if they rise or fall.. I'm just a collector & that's my business. Forecasting in my views is pointless, it's all about quality. Back in the 80's, I worked for Mcdonalds as a young lad so I figure, get some shares. I loved Mcdonalds, everything about it & didn't care what people thought of me having shares in something I loved. Well golly, we all start collecting at some time. Think of trading as a collecting, buy a share because you believe in what your buying & not to make a profit. Give it a try, buy 100 shares of any stock you like, hold on to it long enough to forget about it then hold on to it longer till one day your going through your old things & go wow! there's my collection from my youth so you tuck it away, for get about it then when your ready to retire, you once again see your collection & once again you smile & tick it away. You just can't put a value on something you own & if your a shareholder, stand proud of the club you have been apart for the longest time. Stocks go up & stocks go down but in all reality there's quality in anything apart of who you are.
Rz123 premium member - 11 months ago

Hi Geoff,

Thanks for your article. I've found your writing to be very instructive.

Regarding capex maintainance estimates, is there any specific example(s) you can provide showing the figures you reached and the subtractions you made from total capex and why? My concern is that in subtracting from total capex to reach maintainance capex the final estimated cash flow becomes less conservative (though I'm sure more accurate if done correctly). Given that future free cash is the determinant of all companies' future worth any examples/additional information you have regarding your own cash flow valuations would be much appreciated.


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