Owner earnings
Owner earnings is Warren Buffett’s answer to a deceptively simple question: how much cash does this business actually produce for the people who own it? Reported net income isn’t quite it — accounting charges like depreciation aren’t cash, while some very real cash costs, like the capital spending needed just to keep the machines running, don’t reduce reported earnings at all. Buffett laid out the concept in his 1986 letter to Berkshire shareholders.
The definition: net income, plus depreciation and amortization, minus maintenance capital expenditure — the spending required to hold the business in place, as opposed to spending that grows it. A business that must pour most of its earnings back in just to stand still is a very different thing from one that keeps its cash, even if both report the same profit.
How the Moat Index measures this
We compute owner earnings from SEC filings, with one estimate we’re open about: companies don’t split capital spending into maintenance and growth, so we approximate maintenance capex as the lesser of reported capex and depreciation — a defensible proxy, not a precise figure, as the methodology says plainly. Owner earnings then does double duty: its growth feeds the capital-discipline sub-score of the Moat Score, and a normalized figure is capitalized into the intrinsic value estimate behind every margin of safety. Company pages chart it year by year.