Tohoku Electric Power Co Inc ADR Owner Earnings

We use the owner’s earnings calculation described with Warren Buffett’s 1986 letter to shareholders.

If we think through these questions, we can gain some insights about what may be called "owner earnings." These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges such as Company N's items (1) and (4) less (c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. (If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in (c))

The general formula can be summarized as follows:

(+) Net Income
(+) Depreciation & Amortization
(-) Maintenance Capital Expenditures
(-) Change in Working Capital
(=) Owner Earnings

Note, for financial companies like banks, the net working capital change is ignored given their business model.