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Dear Buffett and Value heads - please help me solve this riddle:
If Owner's Earnings = Net Income + D&A - (Maint. CAPEX + ∆NCWC),
Then, "growth reinvestment" should be \[Growth CAPEX + ∆NCWC\].
Where, NCWC (noncash working capital).
The problem arises when ∆NCWC decreases so much (or even goes negative) such as NFLX, thus where it exceeds Growth CAPEX and turns "reinvestment" negative.
This of course "releases" cash and increases Owner's Earnings, as the business operations doesn't need to invest it's own cash (debt or equity) into operations, rather it uses suppliers (such as accounts payables).
So..... I'm wondering:
1. How do you calculate a reinvestment rate in this case?
2. Reason I ask about reinvestment is I'm trying to calculate GROWTH, which is \[ROIC x reinvestment rate\], and apply it to Owner's Earnings for a DCF.
3. More importantly - do yall use owner's earnings for DCF's? If so, should I be calculating growth rates differently?