Earnings Power Value (EPV): Definition and Simple Calculation
Earnings Power Value (EPV) estimates the value of a business based on sustainable earnings and an appropriate capitalization rate (1/discount rate). It assumes current earnings are sustainable indefinitely (no growth).
Exact formula used in code
Where τ=taxRate = 0.25; ebitdPerShareTTM is used; WACC is required and validated.
Fallback: EPS-Based EPV
When EBITDA data is unavailable, EPV is estimated using EPS (Earnings Per Share) as a proxy:
Estimated EBITD = EPS / (1 − taxRate) + estimated D&A
where D&A ≈ 3% of EBIT (industry average)
This approach adds back taxes from EPS, then estimates depreciation & amortization to approximate operating cash generation. It's more conservative than using raw EPS but provides a reasonable fair value estimate when EBITDA is missing.
Notes
- More conservative than DCF.
- Works well for mature or cyclical companies where growth is uncertain.
- When EBITDA is unavailable, EPS is used to estimate fair value by accounting for taxes and adding back estimated depreciation and amortization.