SunWorks Inc (SUNWQ)

[Intotheblack]

Thanks Ahk, Excellent math. For anyone wondering "What's this metric supposed to tell us?" Here's a little background on "Owners Earnings":

https://www.quora.com/Warren-Buffett-What-is-the-difference-between-Owner-Earnings-and-Free-Cash-Flow

Conceptual idea behind both is the same: amount of cash available to equity owners to allocate freely. The key difference is their definition of capital expenditures (capex).

Free Cash Flow (more precisely, Free Cash Flow to Equity for this question) is essentially operating cash generated by business less cash spent on total capex. There are 2 issues with this definition:

1.) Capex consists of 2 parts: "maintenance" and "growth". The first one is required (to preserve/maintain current business position), the second is optional (to grow business, etc). FCFE ignores this distinction.

2.) Capex sometimes can be so large and uneven that FCFE becomes too erratic and practically impossible to forecast and value.

Buffett defined Owner Earnings to address these shortcomings. He subtracts only maintenance portions of capex, and he averages them out over sufficiently long periods of time.

Conceptually Owner Earnings are more correct, but this approach has its own challenges:

1.) Companies are not required by SEC to report these 2 capex components separately, so most of them don't. You will have to use an "educated guess" to infer the maintenance capex;

2.) Averaging out relies on the assumption that past maintenance capex patterns will remain reasonably stable in the future. Sometimes this is not true.


And here's another link with more in depth detail:
http://www.oldschoolvalue.com/blog/accounting/what-is-owner-earnings/