what is earnings power value epv 
earnings power value epv is a technique for valuing stocks by making assumptions about the sustainability of current earnings and the cost of capital but not future growth earnings power value epv is derived by dividing a company s adjusted earnings by its weighted average cost of capital wacc while the formula is simple there are a number of steps that need to be taken to calculate adjusted earnings and wacc the final result is epv equity which can be compared to market capitalization formula and calculation for earnings power value epv epv adjusted earnings wacc where e p v earnings power value w a c c weighted average cost of capital begin aligned text epv frac text adjusted earnings text wacc textbf where epv text earnings power value wacc text weighted average cost of capital end aligned epv waccadjusted earnings where epv earnings power valuewacc weighted average cost of capital epv starts with operating earnings or ebit earnings before interest and tax not adjusted at this point for one time charges average ebit margins over a business cycle of at least five years are multiplied by sustainable revenues to yield normalized ebit normalized ebit is then multiplied by 1 average tax rate the next step is to add back excess depreciation after tax basis at one half average tax rate at this point the analyst has a firm s normalized earnings figure adjustments now take place to account for unconsolidated subsidiaries current restructuring charges pricing power and other material items this adjusted earnings figure is then divided by the firm s weighted average cost of capital wacc to derive epv business operations the final step to calculate the equity value of the firm is to add excess net assets mainly cash plus the market value of real estate minus legacy costs to epv business operations and subtract the value of the firm s debt epv equity can then be compared to the current market capitalization of the company to determine whether the stock is fairly valued overvalued or undervalued epv is meant to be a representation of the current free cash flow capacity of the firm discounted at its cost of capital 