Earning Power Value (EPV) is Bruce Greenwald's deliberately cautious way of estimating what a business is worth. It assumes the business earns its current, cycle-smoothed after-tax operating profit forever, with no growth and no decline. You take that steady profit and divide it by the cost of capital to get the EPV.
The math is bare on purpose:
• After-tax operating profit (NOPAT) = a smoothed operating profit (EBIT) × (1 − the effective tax rate) • EPV for the whole business = NOPAT ÷ discount rate • EPV for shareholders = the whole-business EPV + cash − total debt • Per share = shareholder EPV ÷ shares outstanding
"Smoothed operating profit" evens out the ups and downs. We average the operating margin over 5 years and apply it to the latest revenue. A peak year should not set a forever value, and neither should a bad year.
One simplification to know about: we capitalize after-tax operating profit directly and do not reconcile depreciation to true maintenance capex the way a fuller Greenwald EPV does. For very capital-heavy businesses, where depreciation and the spending needed to stand still drift apart, lean on the asset value as a cross-check.
EPV is used as the bottom of an intrinsic-value range. If the price is below EPV, you are paying nothing for any future growth, which is a margin of safety even if the business never grows again. If the price is above EPV but below the DCF value, you are paying for some growth, and the question is whether that growth can really happen. If the price is above the DCF value, you are paying for near-perfect execution.