If you've read any Berkshire Hathaway shareholder letter, you've seen Warren Buffett dismiss reported net income and reach for owner earnings instead. The formula is simple, the implications are huge, and yet most stock-screening tools never compute or display it.
This post explains owner earnings in plain English, shows the exact Buffett formula, walks through the calculation on Apple (AAPL), and points to the /buffett/aapl/ page where invest-like displays this metric for every stock in the universe.
What owner earnings is
"Owner earnings: reported earnings plus depreciation, depletion, amortization, and certain other non-cash charges... less the average annual amount of capitalized expenditures for plant and equipment that the business requires to fully maintain its long-term competitive position and its unit volume."
- Warren Buffett, Berkshire Hathaway 1986 Shareholder Letter
In plain English: the cash the business actually generates for the owner after paying for the maintenance the business needs to stay competitive.
The formula in symbols:
Owner Earnings = Net Income + Depreciation & Amortization + Other Non-Cash Charges − Maintenance Capex
The key insight: maintenance capex is not what GAAP depreciation says it is. GAAP depreciation is an accountant's straight-line estimate. Actual maintenance capex is the real dollars you have to spend to keep the business running at current volume - and it's almost always different.
Why this matters
Reported net income includes depreciation as an expense, but the depreciation number is a non-cash accounting figure based on historical cost. Two stocks with identical net income can have wildly different actual cash generation depending on whether their accounting-depreciation matches their real-world capital-spending requirement.
Example: a steel mill bought in 1985 is fully depreciated by 2015 on the books but actually requires $500M every five years to keep running. Reported income looks great (no depreciation flowing through anymore), but owner earnings is much lower because the maintenance capex is real.
The inverse case: a software company has heavy R&D spending that's expensed (not capitalised), and very little physical capex. GAAP earnings look modest. Owner earnings can be substantially higher because the R&D wasn't actually a "capital outlay needed to maintain unit volume" - it was a growth investment that adds to value.
This is why Buffett ignores reported earnings on most businesses and reaches for owner earnings as the headline number when deciding whether to buy or sell.
The Apple calculation (real numbers, fiscal year 2024)
Here is the step-by-step on Apple, using their reported 10-K filing.
Step 1 - Start with net income:
$93.7B
Step 2 - Add back non-cash charges (depreciation + amortization):
$11.4B from D&A on PP&E
$0.1B from other amortization
Subtotal: $105.2B
Step 3 - Subtract maintenance capex:
This is the judgment call. Apple's total reported capex in 2024 was $9.4B. Of that:
- ~$5-6B is genuine maintenance (data center refresh, retail store fit-out cycles, manufacturing tooling for existing iPhone production lines)
- ~$3-4B is growth (new product line capacity, AI infrastructure build-out)
For owner-earnings purposes, we subtract only the maintenance portion. Let's use $5.5B as the maintenance estimate (the lower bound of Apple's own commentary on which capex they consider "stay-flat" spending).
Owner Earnings = $105.2B − $5.5B = $99.7B
For comparison: Apple's reported free cash flow (different metric, just operating cash flow minus all capex including growth) is $108.8B. Reported net income was $93.7B.
So Buffett's owner-earnings for Apple sits between net income (too pessimistic - too much depreciation) and FCF (too optimistic - counts growth capex as not needed). The owner-earnings yield on Apple's ~$3.4T market cap: ~2.9%. That's why the Buffett-Brain page on Apple marks the valuation pillar as Partial Fit rather than Strong - at the current price, the owner-earnings yield is below Buffett's 5% floor.
Where it shows up in invest-like
We compute owner earnings on every stock in the universe at every quarterly refresh. The number appears in three places:
- Stock detail page: /buffett/aapl/ shows owner earnings, owner-earnings yield, and the Buffett pillar verdict in the "Valuation" pillar row
- Methodology page: /methodology/buffett-fit/ documents the exact maintenance-capex estimation methodology we use
- Boardroom debates: when the Buffett persona quotes owner-earnings in the Boardroom, the underlying number comes from the same scoring engine
The methodology for maintenance capex estimation: we use the 5-year average of (capex − R&D expense − growth signals) for non-R&D-heavy businesses, and (capex − reported growth investments) for software / SaaS / R&D-heavy businesses. The methodology is published openly and reviewable on the methodology page.
Common misconceptions
"Owner earnings is just free cash flow"
Wrong, although close. FCF = Operating Cash Flow − Total Capex. Owner Earnings subtracts only maintenance capex, not growth capex. For a growing business, FCF understates owner earnings (because growth capex was deducted, but the growth capex isn't actually needed to maintain current cash generation).
For a mature, no-growth business, FCF and Owner Earnings converge. For a growing business, Owner Earnings is meaningfully higher than FCF.
"Owner earnings is the same thing as adjusted earnings"
Wrong. Adjusted earnings is a corporate-management construct that strips out "one-time" items. Owner earnings is a Buffett construct that recognises GAAP's failure to match real cash spending. The two metrics can be completely different.
"It's just net income + D&A"
That's the rough heuristic some textbooks teach. But the maintenance-capex deduction is the whole point. Without it, you're just computing EBITDA, which Buffett famously called "a fairy tale."
"Does management think the tooth fairy pays for capital expenditures?"
- Warren Buffett (commenting on EBITDA usage)
How to use this in your own analysis
If you want to use owner earnings to evaluate a stock:
- Pull the latest 10-K and find net income, D&A, and total capex (all reported)
- Estimate maintenance capex (the hard part). Conservatively, use 70-80% of total capex for mature businesses, 40-60% for high-growth businesses
- Compute owner earnings = net income + D&A − maintenance capex
- Compute owner-earnings yield = owner earnings / market cap
- Compare to your hurdle rate. Buffett's published floor: 5% absolute for stable businesses, higher for cyclical/risky
Or just open the stock on invest-like - every public stock has the owner-earnings calculation displayed, with the underlying maintenance-capex assumption noted.
Disclosure
Educational tool. Owner earnings is a calculation, not a recommendation. Past owner-earnings does not predict future returns. The maintenance-capex estimate involves judgment, and different analysts can reach different numbers - anyone analysing the same stock should pull the raw 10-K data and compute it themselves.
Author: Zaid Ghazal, indie founder of invest-like, Kiel, Germany. Not a registered investment adviser. Owner earnings as a concept is from Berkshire Hathaway Inc.'s 1986 shareholder letter, used here for educational commentary.