Warren Bufett’s Owner’s Earnings Calculation

In this lesson, the concept of owner’s earnings was introduced as a measure of a company’s profitability. Owner’s earnings are calculated by taking the net income of a company and subtracting the amount paid out as dividends and any money invested back into the business that did not materialize as book value. The difference between reported earnings and owner’s earnings was demonstrated through a scenario using a generic company. The lesson then applied the concept of owner’s earnings to Walmart and showed how it can be used in conjunction with future earnings projections to assess a company’s profitability. Finally, the importance of assessing the stability or increase in future earnings was emphasized as an important factor in evaluating a company’s profitability.