Owner earnings from the filings

A fact is a concept name, a value, a unit, a start and end date, the form that reported it and the date it was filed. Turning a pile of facts into one row per fiscal year forces four choices, and every one of them changes numbers. Which form: 10-K annual reports only, not quarterly 10-Qs. Which period: full years only, between 330 and 380 days, which drops the quarters and year-to-date figures that 10-Ks also carry. Which filing: the latest, so restatements win. Which concept: companies change tags over time, so a reader keeps a short preference list per field and takes the first one that has the year.

One more choice bites quietly. Johnson & Johnson's fiscal year is 52 or 53 weeks, and three of its years ended on 3 January. Labelled by the calendar year of the end date, fiscal 2009 collides with fiscal 2010 and silently overwrites it. A year that ends in the first ten days of January belongs to the year before.

Caterpillar tagged its profit as NetIncomeLoss until fiscal 2010 and as NetIncomeLossAvailableToCommonStockholdersBasic from 2011. Its capital spending moved from PaymentsToAcquireProductiveAssets (to 2017) to PaymentsToAcquirePropertyPlantAndEquipment (from 2018); the two agree exactly in the years both appear. Exxon Mobil stopped tagging diluted shares after 2013 and tags basic shares since, which it reports as the same number, so its usable run starts in 2011. A reader that knows only one tag per field returns four years for Caterpillar and three for Exxon and calls it data.

The full concept map, every fallback and every restated value is in the source map. The habit is to print, for each field, which concept fed which years, before trusting any total.

Total capital spending is the spend to stand still plus the spend to grow. Subtracting all of it removes some money the owners chose to reinvest, so the figure is lower than Buffett's owner earnings for any business that is expanding. For a valuation, erring low is the safer direction, and it has one more virtue: it is computed from the filing, not from a guess. The honest name for what we compute is owner earnings, all-capex approximation, and every page and the bench label it so.

The opposite error is the one Buffett warned about in the same 1986 letter: adding depreciation back to profit and calling the result cash flow, with no capital spending subtracted at all. That number hides the money a business must keep pouring in. It is the most common shortcut in a pitch deck.

Operating cash flow already adds back depreciation, and it also moves with working capital: when a company collects faster or pays suppliers slower, operating cash rises without the business earning more. We store operating cash flow in the sample so you can compare, but the owner-earnings formula here starts from net income, as Buffett's does. Working capital and why cash and profit diverge belong to Finance: Reading the Numbers ↗.

Growth capex subtracted. Every dollar spent to grow is counted as if it were spent to stand still, so a growing company looks worse than it is. Direction: too low.

Caterpillar's leased equipment. The capital spending tag Caterpillar uses covers its own plant and equipment and leaves out equipment its finance arm buys to lease to customers, while the depreciation tag includes depreciation on that leased fleet. So depreciation is added back for assets whose purchase is never subtracted. Direction: too high, for Caterpillar only. A careful analyst finds the leasing spend in the cash flow statement and subtracts it; we leave it, label it, and keep the reader of our numbers informed.

One-off years. Exxon's fiscal 2020 net loss of 22,440 million came with 46,009 million of depreciation, depletion and amortisation that included large write-downs; J&J's fiscal 2023 net income of 35,153 million included a gain from separating its consumer health business. A single year's owner earnings can be off in either direction by more than the business earns in a normal year. Normalising across a cycle is Analyst session 2.

J&J's depreciation and amortisation, 7,503 million in fiscal 2025, was well above its capital spending of 4,832 million. A large part of that amortisation is the write-down, year by year, of intangible assets it acquired, which is a charge with no cash leaving that year and no capital spending to replace it. Adding it back is what the formula says to do. Whether those acquired intangibles will need to be "re-bought" through future acquisitions to keep the business where it is, is exactly the guess Buffett's term (c) asks for, and the filing cannot make it for you.