EPVBruce Greenwald (Columbia University)
EPV (Earnings Power Value) Calculator
Developed by Columbia Business School Professor Bruce Greenwald, EPV strips away all speculative growth assumptions (growth = 0%) to value a firm purely on its sustainable operating earnings power capitalized at the cost of capital.
Calculator Inputs
Income Statement > Operating Income
Cash Flow Statement > D&A
Theoretical Foundation & Equation
EPV normalizes operating earnings (EBIT), deducts taxes and maintenance CapEx, and capitalizes this sustainable NOPAT at the cost of capital (WACC). Cash is added and debt is deducted to isolate equity value.
Core Intrinsic Formula
Enterprise EPV = Sustainable Adjusted NOPAT / Cost of Capital (k) | Equity EPV = Enterprise EPV + Cash - Debt
Variable Definitions & Disclosure Guidance
| Symbol | Variable Name | Description | Filing Source Guide |
|---|---|---|---|
| Normalized EBIT | Normalized EBIT | Sustainable operating earnings stripped of non-recurring items | 10-K Income Statement: Normalized Operating Income |
| Tax Rate | Effective Tax Rate | Normalized corporate tax rate (20-25%) | Historical average effective tax rate |
| Maintenance CapEx | Maintenance CapEx | Capital expenditures required strictly to maintain existing capacity (excluding growth CapEx) | Cash Flow Statement: Estimated replacement CapEx |
| k | Cost of Capital | Required hurdle rate or WACC (8-10%) | Weighted Average Cost of Capital |
Financial Intuition: Growth is uncertain and frequently destroys economic value when ROIIC < WACC. If a business is attractive with zero growth, any future profitable expansion is a free option for the investor.
Step-by-Step Worked Example
Greenwald no-growth benchmark valuation case.
Sample Financial Filing Inputs
Normalized EBIT
$100M
Normalized Operating Profit
Tax Rate / WACC
25.0% / 10.0%
Tax Rate and Capital Cost
Cash / Total Debt
$30M / $50M
Balance Sheet Assets & Debt
Diluted Shares
10M Shares
Share Count
Calculation Steps
Step 1: Calculate Sustainable NOPAT$75.0M Sustainable Earnings
$100M × (1 - 0.25) + ($20M - $20M) = $75.0M
Step 2: Compute Enterprise EPV$750.0M Enterprise Value
$75.0M / 0.10 = $750.0M
Step 3: Bridge to Equity Value and Per Share Value$73.00 per share
($750M + $30M - $50M) / 10M shares = $730M / 10M = $73.00
Example Conclusion & Interpretation
Under strict zero-growth assumptions, intrinsic Earnings Power Value is $73.00 per share.
Suitability Checklist & Limitations
Best Suited For
- •Mature cash cow businesses with protected competitive moats
- •Value investors refusing to pay for speculative future growth
Not Suitable For
- •Unprofitable startups, rapid-growth software firms, or secularly declining legacy businesses
Frequently Asked Questions
DCF relies on multi-year growth forecasts and terminal growth assumptions, whereas EPV assumes 0% perpetual growth, creating a much harder intrinsic value floor.
Primary Citations & Source Documentation
Bruce Greenwald et al. (Columbia Business School) (2001)
Value Investing: From Graham to Buffett and Beyond (Wiley Finance, 2001)
View Source / Filing ReferenceLegal Caveat
- Ensure that maintenance CapEx accurately reflects true replacement depreciation costs.