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Owner Earnings

noun · the cash a passive owner could pull out without impairing competitive position
Definition

Net income + D&A + SBC − maintenance capex − Δ working capital. The cash a sole owner could withdraw each year without the business losing its competitive position.

Why it matters

GAAP earnings overstate cash for capex-heavy businesses and understate cash for those reinvesting growth capex above maintenance levels. Owner earnings is the right denominator for valuation.

¬ Buffett, 1986 Shareholder Letter

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