Earnings Power Value (EPV)
For informational and educational purposes only • Not investment advice.
Compare EPV estimates across companies
What is Earnings Power Value?
Earnings Power Value (EPV) estimates a company's intrinsic value based on the operating earnings its existing business can sustainably generate, without assigning value to future growth.
EPV values the company's existing operations by capitalizing normalized after-tax operating earnings using the required rate of return.
EPV Formulas
Unlike a Discounted Cash Flow model, Earnings Power Value assumes no future growth. Instead, it estimates the value of the existing business by capitalizing sustainable after-tax operating earnings using the required rate of return.
How Earnings Power Value Works
How the EPV Model Works
Earnings Power Value estimates the intrinsic value of a company by normalizing current operating earnings, converting them into sustainable after-tax earnings, capitalizing those earnings using the required return, and finally determining the value attributable to shareholders.
Key Model Assumptions
• Current Revenue and EBIT use trailing twelve-month (TTM) values when available, with the latest annual values used as a fallback.
• Sustainable EBIT is estimated by applying a normalized EBIT Margin, based on the median of up to the five most recent valid historical EBIT Margins, to current Revenue.
• The selected Earnings Scenario adjusts Sustainable EBIT to determine the Normalized EBIT used in the valuation.
• WACC represents the required return used to capitalize sustainable after-tax operating earnings.
• The Risk-Free Rate is based on the U.S. 10-Year Treasury yield published by the Federal Reserve Board.
• The resulting value reflects the company's existing operations and excludes future growth opportunities.
Step 1 — Estimate Normalized Operating Earnings
The EPV model estimates Sustainable EBIT by applying a normalized EBIT Margin to the company's current Revenue base, using trailing twelve-month (TTM) Revenue when available and the latest annual Revenue as a fallback. The normalized EBIT Margin is based on the median of up to the five most recent valid historical EBIT Margins, reducing the impact of unusually strong or weak individual years.
The selected Earnings Scenario then adjusts Sustainable EBIT to determine the Normalized EBIT used in the valuation.
Step 2 — Calculate Normalized After-Tax Operating Earnings (NOPAT)
Normalized EBIT is adjusted for taxes to calculate Net Operating Profit After Tax (NOPAT).
NOPAT represents the company's after-tax operating earnings before financing costs and is used as the sustainable earnings base for EPV.
Step 3 — Calculate WACC
The Weighted Average Cost of Capital (WACC) represents the required return demanded by shareholders and lenders.
In the EPV model, WACC is used to capitalize normalized after-tax operating earnings into Enterprise Value.
Step 4 — Calculate Enterprise Value
EPV assumes the company can maintain its NOPAT indefinitely without future growth. Capitalizing these sustainable earnings using WACC determines the Enterprise Value of the existing operating business.
Step 5 — Calculate Fair Value Per Share
Enterprise Value is adjusted for Net Debt or Net Cash to determine the Equity Value attributable to common shareholders.
Equity Value is then divided by Shares Outstanding to calculate the estimated Fair Value per Share. Because EPV excludes future growth, the result reflects the value of the company's existing earnings power.