Introduction

​

The Payback Time Calculator estimates how much owner earnings a company may generate over the next eight years based on its current earnings per share, free cash flow per share, and expected growth rate. It provides another way to evaluate whether the current quality and growth of a business may justify its valuation.

​

I use this method as one part of a broader investment process. It should always be combined with an assessment of the company’s competitive advantages, management, financial strength, risks, and long term growth prospects.​

​​​

Where to Find the Data

​

The quality of the calculation depends on the figures and assumptions you enter.

​

Earnings per share and free cash flow per share can usually be found in the company’s annual report or through financial data providers such as Finbox. Free cash flow per share can also be calculated by dividing total free cash flow by the number of shares outstanding.

​

For the estimated growth rate, I often use analyst consensus estimates from Finbox as a starting point before adjusting the assumption based on my own research and the company’s long term prospects.

​

Growth estimates are only forecasts, so small changes in the expected growth rate can materially affect the result.

​

​​

​​​​​​

What You Need

​

Earnings Per Share: Enter the company’s current earnings per share. This represents the profit generated for each outstanding share

​

Free Cash Flow Per Share: Enter the company’s current free cash flow per share. This measures how much free cash flow the company generates for each outstanding share and helps estimate the cash available to shareholders.

​

Estimated Growth Rate: Enter the annual growth rate you expect the company’s owner earnings to achieve over the next eight years. This can be based on historical performance, analyst forecasts, management guidance, industry trends, and your own assessment of the business.

​​

Understanding the Results

​

Free Cash Flow Ratio: The Free Cash Flow Ratio compares free cash flow per share with earnings per share. A ratio above 100% means the company generates more free cash flow per share than reported earnings per share, while a lower ratio indicates weaker cash conversion.

​

Total Owner Earnings Over Eight Years: The calculator estimates the cumulative owner earnings the company may generate per share over the next eight years based on the current earnings per share, free cash flow per share, and your expected growth rate. It then automatically applies a 50% margin of safety, meaning the value shown in the calculator already includes a 50% discount to the estimated owner earnings. This provides an additional cushion if future growth or cash generation turns out to be weaker than expected.

​​

Try the Calculator

​

Enter the company's current earnings per share, free cash flow per share, and estimated annual growth rate below. The calculator estimates the company's Total Owner Earnings over the next eight years and automatically applies a 50% margin of safety. It also calculates the Free Cash Flow Ratio to show how well the company's earnings are supported by free cash flow.