A portfolio statement reports one thing, its market value, and one income figure, the dividends that arrived. Both are facts about other people's opinions and about payout policy, and neither tells you what the businesses underneath actually earned on your behalf. Look-through earnings fix that. Buffett used the construct in the Berkshire letters to answer a specific accounting complaint: consolidated accounts recognised the dividends Berkshire received from its minority stakes and ignored the far larger earnings those companies retained, so the reported figure understated what the holdings were producing. The construct is the same one M6.01 builds as owner earnings, moved up a level from one company to the whole book.
How do you calculate and read look-through earnings?
The arithmetic is short. For each holding, divide the position's market value by the share price to get your share count, multiply by earnings per share, and add across the book. Here it is on a ₹50,00,000 portfolio held in five names.
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| Holding | Weight | Price | EPS | Value | Shares | Earnings attributable to you |
|---|---|---|---|---|---|---|
| A | 30% | ₹2,400 | ₹96 | ₹15,00,000 | 625.000000 | ₹60,000.00 |
| B | 25% | ₹1,800 | ₹60 | ₹12,50,000 | 694.444444 | ₹41,666.67 |
| C | 20% | ₹650 | ₹26 | ₹10,00,000 | 1538.461538 | ₹40,000.00 |
| D | 15% | ₹3,200 | ₹80 | ₹7,50,000 | 234.375000 | ₹18,750.00 |
| E | 10% | ₹480 | ₹12 | ₹5,00,000 | 1041.666667 | ₹12,500.00 |
| Total | 100% | ₹50,00,000 | ₹1,72,916.67 |
Two numbers come out of that total, and the second is the one to carry. The look-through earnings yield is 1,72,916.67 ÷ 50,00,000 = 3.458333%, and its reciprocal is the book's look-through price-to-earnings ratio of 28.915663. That is the multiple you are actually paying for the whole portfolio, and it is a weighted average that no single holding's P/E gives you. Cross-check it the other way: the weighted average of the five earnings yields is 3.458333% to six figures, which it must be, because a value-weighted yield is what a look-through yield is.
The number's real use is the split it forces. On the payout ratios of those five names (25%, 40%, none, 50% and 30%), the dividends that reach your account come to ₹44,791.67, a dividend yield of 0.895833%. The other ₹1,28,125.00, which is 74.0964% of everything the businesses earned for you, was retained and reinvested by managements you selected. A statement reports the 0.9% and is silent about the 74%. If that retained capital compounds at a 15% incremental return, it adds ₹19,218.75 to next year's look-through earnings without you buying a single share, which is the compounding case stated as an amount rather than as a sentiment.
What are the limits of look-through earnings?
Two honest limits, because the number is easy to over-trust. Reported earnings per share is not owner earnings, so a look-through total built on unadjusted EPS inherits every quality-of-earnings problem in M2.06 and every capitalised cost in M2.04. And retained earnings only compound if they are reinvested above the cost of capital; retained at a return below the hurdle they destroy value, so the 74% figure is a measure of how much of your outcome depends on capital allocation you do not control (M3.07), not a promise about it. Track look-through earnings per year alongside market value, and you have a second scoreboard that moves with the businesses rather than with the quotes.