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What are Owner Earnings Per Share?

Owner Earnings Per Share is the per-share expression of Warren Buffett's owner earnings concept, which represents the cash available to the owners of a business after all expenses required to maintain the company's competitive position and production capacity. Unlike GAAP earnings per share, owner earnings adjusts for non-cash charges, maintenance capital requirements, and stock-based compensation dilution, providing what Buffett considers the truest measure of per-share value creation.

Formula

Owner Earnings = Net Income + D&A - Maintenance CapEx - Stock-Based Compensation +/- Working Capital Changes
Then divide by Diluted Shares Outstanding

The Buffett Owner Earnings Concept

In Berkshire Hathaway's 1986 annual letter, Warren Buffett criticized the common use of reported earnings and even cash flow as measures of business value. His critique centered on the failure to account for the capital a business must reinvest simply to maintain its economic position. A business that reports $10M in earnings but must reinvest $8M to avoid falling behind is only generating $2M for its owners.

The owner earnings concept separates maintenance capital (the cost of standing still) from growth capital (investment in expansion). The result is a more honest assessment of the cash the business can actually distribute without impairing future competitiveness. Over time, owner earnings per share growth is the primary driver of intrinsic value per share growth for any business.

Model Owner Earnings in a DCF

Use the ValueMarkers DCF Calculator to build an intrinsic value model anchored to owner earnings rather than reported EPS.

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Frequently Asked Questions

What are Owner Earnings Per Share?+
Owner Earnings Per Share applies Buffett's 1986 shareholder letter formula to a per-share basis. Buffett defined owner earnings as: reported net earnings + depreciation and amortization - maintenance capital expenditures - stock-based compensation +/- changes in working capital requirements. Divided by diluted shares outstanding, this per-share figure represents the cash the owner could extract from the business annually without impairing its competitive position.
How is maintenance CapEx estimated?+
Maintenance CapEx (the capital required to maintain existing productive capacity) is not separately reported by most companies. Analysts typically estimate it as the lower of: (1) reported D&A (a common proxy), or (2) a percentage of revenue derived from the company's historical capital consumption pattern. For asset-light businesses, maintenance CapEx may be only 20-30% of total CapEx; for capital-intensive companies, it may equal or exceed total D&A.
Why is Owner Earnings different from Free Cash Flow?+
Free cash flow equals operating cash flow minus all CapEx, which includes both maintenance and growth capital. In a year of heavy investment, FCF will be low even if the maintenance earning power is high. Owner earnings separates maintenance from growth CapEx, providing a cleaner picture of the ongoing cash generation from the existing asset base. Growth CapEx is treated as an investment decision separate from the assessment of current earnings power.
When should investors use Owner Earnings Per Share instead of EPS?+
Owner earnings per share is most valuable for capital-intensive businesses where D&A diverges significantly from maintenance CapEx, and for technology companies where large stock-based compensation inflates GAAP earnings. It is also useful when comparing companies across industries with very different capital structures. The metric should be calculated over multiple years and averaged to smooth out CapEx cycles.

Related Terms

Free Cash Flow Per Share

(Operating CF - CapEx) / diluted shares

Earnings Per Share

GAAP net income divided by diluted shares

Stock-Based Compensation

Non-cash equity grants that dilute shareholders

Intrinsic Value

Present value of future owner earnings

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