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Not Drunkenmiller, this time.

Here is the key part of Mycroft's distinction between Druckenmiller's FCF and Buffett's 'Owner Earnings':

The Druckenmiller Free Cash Flow that we used above is calculated in this way:

Cash Flow From Operations - Capital Spending

Owner Earnings on the other hand is calculated as follows:

Net income + (depreciation + depletion & amortization) + other non-cash charges - maintenance capital expenditure - increase or decrease in working capital

The difficult part in Mr. Buffett's Owner Earnings calculation is that he has to factor in changes in working capital, which are not a one-step process, but require the following items to be factored in:

Increases/Decreases in the following:

Pre-Paid Expenses
Other Current Assets
Other Current Liabilities
Other Working Capital

So Druckenmiller gets $12.30 a share, and Buffett supposedly would get $19.66 a share, with shares currently priced at just under $180, the difference is 15 times free cash flow according to Druckenmiller or 10 times owner earnings according to the Buffett formula.

Looking at the formulae, the major difference is in your judgment about how much of capital spending represents maintenance cap ex, and whether there is some sustainable decrease in the working capital required to run the business. Does anyone have any ideas about these two sources of divergence for the bullish and bearish views?

Regards, DTM
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