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Owners Earnings
Posted by: khengmong (IP Logged)
Date: December 21, 2012 05:56AM

Hi all

Warren Buffett has mentioned about Owner's Earnings as a criteria in assessing a company. The formula is a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges less ( c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive advantage.

Anyone has any idea how to calculate the maintenance capex easiest possible?


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Re: Owners Earnings
Posted by: batbeer2 (IP Logged)
Date: December 21, 2012 06:38AM

Hi khengmong,

The accountant will calculate A and B for you. GuruFocus has them for thousands of companies. Just click on "10y financials" of any stock you're interested in. Usually, A+B = Cash Flow from Operations.

C is for you yourself to estimate. I wrote a some words about how I go about it here.

After I've ruled out all banks, all insurance companies and most mines (including oil), 1 in 20 of the companies that are left are simple enough for me to be able to do a rough estimate of C.

Of those, roughly 1 in 10 seem cheap. Those are the ones I write about.

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