A goose lays a $100 egg every month without fail. Its earning power is the sustainable cash flow: $100 per month, or $1,200 per year.
1) Identify the recurring cash flow (here: $100/month).
2) Decide the horizon (how long it lasts).
3) Translate to an annual figure for comparability.
4) Apply any safety factors for risk or decay.
Assume the goose’s productive life declines with age. Annual earning power is monthly cash × 12 × remaining years.
| Goose age (years) | Remaining years | Annual cash ($) | Total cash over remaining life ($) |
|---|---|---|---|
| 1 | 10 | 1,200 | 12,000 |
| 3 | 7 | 1,200 | 8,400 |
| 5 | 5 | 1,200 | 6,000 |
| 8 | 2 | 1,200 | 2,400 |
If you want a margin of safety, haircut the cash by 20%. New annual earning power = $1,200 × 0.8 = $960.
| Goose age (years) | Remaining years | Annual cash after safety ($) | Total cash over remaining life ($) |
|---|---|---|---|
| 1 | 10 | 960 | 9,600 |
| 3 | 7 | 960 | 6,720 |
| 5 | 5 | 960 | 4,800 |
| 8 | 2 | 960 | 1,920 |
Goose dinners have become rare. You could cook the goose today and sell a single goose dinner for $500. Compare: - Run it: keep the $100/month cash flow. At age 5 with 5 years left and a 20% safety factor, total = $4,800. - Cook it: one-time $500.
Only cook the goose if you believe the ongoing earning power is worth less than $500 (e.g., expected remaining life is <5 months at $100/month, or risk is extreme).