Garbage in, garbage out. Before any calculation runs, we confirm we have what the protocol requires: operating cash flow greater than zero, depreciation & amortization on file, shares outstanding greater than zero, and at least three years (preferably five) of forward analyst EPS estimates. A business that fails any of these is flagged and skipped — a valuation built on missing or misaligned inputs is worse than no valuation at all.

Owner Earnings is the foundation. It represents the cash a business generates after spending what is necessary to maintain its current productive capacity — not grow it, just sustain it. This is different from Free Cash Flow, which subtracts all capital expenditure including growth investments and therefore penalizes companies that are actively reinvesting in expansion.

We use D&A as the proxy for maintenance CapEx. It is an approximation, but it is consistent and automatable at scale. For Banks, Insurance and REITs the protocol uses Operating Cash Flow only — the economics of D&A are structurally different in those businesses and subtracting it produces a distorted picture.

The valuation uses a two-stage growth structure. The first stage — G1 — reflects how fast the business is expected to grow in the near term, based on a consensus of analyst EPS forecasts over a five-year forward window. We average the five year-over-year growth rates and clip the result to [0%, 20%]. Using a multi-year consensus rather than a single year-over-year figure produces a more stable input — one outlier year cannot skew the entire valuation.

The second stage — G2 — reflects the long-run sustainable growth rate the business can maintain in perpetuity, anchored to U.S. real GDP growth, since no company can grow faster than the overall economy forever. G2 typically lands between 0% and 3%.

Between the two stages, growth fades linearly across years 1 to 11. Growth Rate for Year n = G1 + (G2 − G1) × (n − 1) / 10.

Apply the linear-fade growth schedule to Owner Earnings. Year 1 = OE × (1 + G1). Year n = Year (n−1) × (1 + the growth rate for year n). Continue through year 11, which is calculated only as the input to the terminal value formula in step V — it does not enter the discounting sum directly.

The discount rate is the required rate of return — the minimum return an investor demands to justify owning this asset instead of a risk-free alternative. Buffett anchors here for a reason: if a stock can't generate returns above the risk-free rate after accounting for its uncertainty, it is not an attractive investment.

The protocol's baseline is the long Treasury yield. The protocol also notes a discretionary adjustment: “add 1–2 percentage points if rates are extremely low (which would otherwise produce artificially high valuations) or if the business carries above-average risk.” We codify both adjustments rather than apply them by hand, so the discount rate for any given business comes out the same way every time we run it.

Banks, insurers, and REITs receive a separate sector exception in step I (Owner Earnings = OCF only) and a structural-caveat banner on the page; we do not pile a discount-rate premium on top.

No business stops generating cash after a decade. The terminal value captures the value of all cash flows from year 11 forward, modeled as a perpetuity growing at G2: FV of TV = Year 11 OE / (r − G2). Then discount to present: PV of TV = FV / (1 + r)¹⁰. This is typically the largest single component of intrinsic value, which is why getting G2 right matters.

A guard: if G2 ever rises to meet or exceed r, the formula breaks mathematically. We cap G2 at r − 0.5% to prevent that.

Sum the present value of all projected Owner Earnings (years 1 through 10) plus the present value of the terminal value: Total IV = Σ Year n OE / (1 + r)ⁿ + PV of TV. Divide by fully diluted shares outstanding to get a per-share figure that can be compared directly to Mr. Market's asking price.

Intrinsic value is an estimate, not a fact. Even a well-constructed model carries uncertainty in its growth assumptions, its discount rate, its maintenance CapEx proxy, and the business itself. The margin of safety is the buffer that protects against being wrong. Buffett's principle: only buy when the market price is significantly below intrinsic value.

We default to 25% — a buy is signalled only when the current price is at least 25% below the calculated intrinsic value per share. We raise the margin for lower-quality businesses or higher-uncertainty situations.

For each business, we publish: ticker, Mr. Market's asking price, intrinsic value with margin of safety, the Δ% gap between the two, the Owner Earnings input, G1 and G2. The Δ% column is the headline signal: green means Mr. Market is offering the business below our margin-of-safety price; red means he is asking too much.