Modified Owner Earnings Calculator

Find a business’s true cash earnings power the way value investors do. Modified owner earnings starts from net income, adds back non-cash charges, and subtracts capital expenditures and working capital changes: the cash actually available to owners. Optionally add market cap and shares outstanding to get the owner earnings yield and per-share figure.

Worked example, checked against this exact tool

Net income $500,000, non-cash charges $120,000, capex $200,000, working capital increase $50,000. Modified owner earnings = 500,000 + 120,000 − 200,000 − 50,000 = $370,000. Add a market cap of $8,000,000 and the owner earnings yield is 370,000 ÷ 8,000,000 = 4.63%, an implied P/OE multiple of 21.6x. With 1,000,000 shares outstanding, that is $0.37 per share.

Why net income alone misleads

Net income is an accounting construct. Depreciation and amortization reduce reported profit without spending cash, so adding them back moves toward cash reality. Capital expenditures are the reverse: real cash outflows that never touch the income statement as a lump sum. And a growing business soaks cash into receivables and inventory, which is why the modified version subtracts working capital changes. The result approximates the cash the owners could actually take out while keeping the business running at its current scale.

Maintenance capex is the judgment call

The formula says capex, but what it means is maintenance capex: the spending needed to sustain current earning power. Reported capex includes growth spending (new plants, expansion), which overstates the burden for a growing business and makes owner earnings look worse than reality. Practitioners estimate maintenance capex at roughly 50 to 80% of depreciation for asset-light businesses, and cross-check against capex in years when the business was not growing. Getting this split right matters more than any other input.

Use multi-year averages, not one year

A single year's net income is noisy: one-time litigation, restructuring, asset sales, and tax events all distort it. Serious users average each input over five years and normalize for unusual items before running the formula. Enter the averaged figures and the tool does the rest; the yield and multiple outputs then describe a normalized business, not a lucky or unlucky year.

What competing calculators miss

The direct rival computes the same four-input formula and stops at one number. This page adds the two outputs that make the number usable: owner earnings yield against market cap (the Buffett-style buy signal is a yield comfortably above the risk-free rate) and the per-share figure. It also explains the maintenance-vs-growth capex trap that the rival never mentions, which is where most real-world errors come from.

Frequently asked questions

What is the modified owner earnings formula?

Modified owner earnings = net income + non-cash charges − capital expenditures − change in working capital. It measures the cash available to owners after sustaining the business.

How is this different from Buffett's original owner earnings?

Buffett's version adds back depreciation and subtracts maintenance capex. The modified version generalizes non-cash charges and explicitly subtracts working capital changes, which matter for growing businesses.

What are non-cash charges?

Depreciation, amortization, impairment charges, and similar accounting expenses that reduce reported income without spending cash. They are usually found on the cash flow statement.

Should I use total capex or maintenance capex?

Maintenance capex: the spending required to sustain current earning power. Using total capex overstates the burden for growing companies. A common estimate is 50-80% of depreciation for asset-light businesses.

Why subtract working capital changes?

Growth consumes cash in receivables and inventory before it shows up as profit. Ignoring it overstates the cash a fast-growing business can actually distribute.

What is a good owner earnings yield?

Compare it to the risk-free rate: a yield meaningfully above the 10-year Treasury, with a quality business trading below its intrinsic value, is the classic Buffett-style buy setup.

How does owner earnings differ from free cash flow?

Reported free cash flow subtracts all capex including growth spending. Owner earnings subtracts only maintenance capex, so it is usually higher for growing companies and closer to sustainable distributable cash.

Can owner earnings be negative?

Yes, for heavy investors or businesses with large working capital needs. Negative owner earnings mean the business consumes more cash than it produces at its current scale.

Should I average multiple years?

Yes. Use 5-year averages of each input and normalize one-time items (litigation, restructuring, asset sales) to avoid valuing a noisy year.

What is the P/OE multiple?

Market cap divided by owner earnings: the price you pay per dollar of sustainable cash earnings. Lower is cheaper, holding quality constant.