Cash flow absurdity and Warren Buffett’s Owner Earnings
Most analysts will talk of EBITDA, EBIT, NOPAT and what not. Warren Buffett’s approach is to think in terms of Owner Earnings. It is somewhat akin to free cash flow.
owner earnings
My thoughts on the Buffett Indicator – current Market Cap to GDP
The best cash flow measure is Warren Buffett’s Owner Earnings. If that is increasing faster than GDP, the fair value of companies will increase faster than GDP
Whether management loves money or loves the business
Management that unfailingly thinks and behaves like an owner of the business and has the courage and candor to discuss failures openly in reports to shareholders.
The tenets of companies Buffett invests in
There won’t be many seven footers out there. The vast majority of stocks don’t measure up and can be ignored.
Making sense of free cash flow numbers
To understand how a company can lose $256 million in reported earnings in 2020 and yet show FCF that year of $491 million you need to read and understand the company’s cash flow statement.
Negative free cash flow can be desirable
Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes
The best approach to choosing common stocks
“If you can look into the seeds of time,
And say which grain will grow and which will not,
Speak then to me.”
How to identify great companies to invest in – Part l
Buffett uses Owner Earnings to judge the performance of a company and its management. He also uses Owner Earnings to assess the intrinsic value of a company.
The hunt for wonderful businesses
Free cash flow yield can be a better indicator when return on capital (ROC) becomes a vanity metric that unduly flatters economic performance and management. We can charge management with the full cost of Economic Goodwill.
You must be logged in to post a comment.