Owner Earnings

Arche defines owner earnings as reported earnings plus depreciation, depletion, amortization, and other appropriate non-cash charges, less the average capital spending required to preserve the company’s competitive position and unit volume.

In plain terms: start with what the accountants say the company earned, add back the non-cash charges, then subtract what it actually costs to keep the business running at full strength. What remains is the cash an owner could pull out without weakening the franchise.

Why reported earnings aren’t enough

GAAP earnings are a fine starting point and a poor ending point, in both directions:

• They can overstate. A steel mill may report $100M of profit while needing $110M of capital spending just to stay competitive. Its owner earnings are negative; its reported earnings are an illusion being reinvested into rust.
• They can understate. A brand business amortizing an acquisition may show depressed GAAP earnings while gushing distributable cash.

The owner-earnings equation cannot offer GAAP’s apparent precision because maintenance capital spending must be estimated. Arche accepts that uncertainty as the price of economic relevance: it is better to use a disclosed, imperfect estimate than a precise figure that ignores a necessary cash cost.

Applying the idea

Owner earnings is an analytical estimate, not a reported filing line:

Owner earnings ≈ reported earnings + qualifying non-cash charges − maintenance investment − additional working capital needed to sustain the business

This follows the economic bridge in Buffett’s 1986 shareholder letter. It requires judgment about which accounting charges can be reversed and what spending is needed to maintain the business.

Two considerations deserve special attention:

1. Count stock compensation once. If it is already expensed in the net income used as the starting point, do not subtract it a second time. If starting instead from operating cash flow, remove any stock-compensation add-back once. Compensation paid with ownership is an economic cost; a non-cash label does not make it free.
2. Maintenance capex must be estimated. Companies rarely separate it cleanly from growth spending, so any estimate should disclose its method and uncertainty rather than treat all capital spending as maintenance.

Company pages provide filing-derived annual statement facts and links to the underlying filings. Owner earnings requires estimates beyond those reported figures, especially for maintenance capital spending.

What to look for

• Owner earnings ≈ net income, year after year. When enough consistent, cited observations are available, persistent large gaps in either direction are a question demanding an answer.
• Owner earnings that grow without matching growth in capital employed — the signature of a business with pricing power rather than a capital treadmill.
• EBITDA is not owner earnings. It skips the very cost — maintenance capital — that separates durable businesses from mirages. Replacement assets are real costs regardless of where depreciation appears in the accounting statements.

Where a company page contains annual history, it provides SEC-derived inputs and links to the underlying filings. Availability varies by company and line item; a missing figure remains unavailable, and this site does not fill it with an owner-earnings estimate.