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EHC, Encompass Health

Health Care Providers & Services capital-intensive Capital build-out

We are the nation's largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated, revenues, and number of hospitals.

We provide specialized rehabilitative treatment, using advanced technology and intensive therapy, on an inpatient basis for patients recovering from a major injury or illness and seeking to regain functional ability, independence and quality of life.

Most of those patients have experienced significant physical or cognitive disabilities or injuries due to medical conditions, such as strokes, hip fractures, and a variety of debilitating neurological conditions, that are generally nondiscretionary in nature and require rehabilitative healthcare services in a facility-based setting.

Latest annual: FY2025 10-K

EHC · Encompass Health

The business

What it sells, where the money comes from, the kind of company it is.

Revenue · FY2025

$5.9B

+10.5% YoY · 11% 5-yr CAGR

Vital signs · TTM, with 5-yr average

Revenue $6.1B 5-yr avg $4.9B

Operating margin 8.9% 5-yr avg 15.1%

ROIC 8% 5-yr avg 12%

Owner-earnings margin 14% 5-yr avg 12%

Free cash flow margin 8% 5-yr avg 6%

The business in brief

read the 10-K →

What this business is and what moves its needle, from its own SEC filings.

Situation: Capital build-out. Capital spending has surged to 12% of sales, today's earnings are charged less depreciation than tomorrow's will be.
What moves the needle: Operating margin has run about 15% through the cycle, a solid margin the cost base and competition set as much as the price does. That margin has stayed fairly steady relative to where it runs (12%–18% over the years), so unit growth and cost discipline, not a moving line, are the lever. Capital spending runs about 11% of sales, well above depreciation, so the return earned on what it sinks into that plant weighs as much as the margin. Read this kind of business on volume, payer mix and reimbursement. On its own account, the filing leans hardest on pricing power & competition, set against the numbers in what the filing emphasizes, below.
Is it a good business?: Return on capital has sat near the cost of capital (median 10%). By owner earnings: roughly 13% of revenue reaches owners as cash, consistently. This is price-taker territory, where the balance sheet and the cycle matter more than any multiple; the rest is in the 10-K.

Every line is arithmetic on the company's filings, shown in full in the sections below.

The record

Ten years of arithmetic, read across the cycle.

The record, 2016–2025

realized figures from each filing · older years to the left

2016’16	2017’17	2018’18	2019’19	2020’20	2021’21	2022’22	2023’23	2024’24	2025’25	TTMTTMMar 2026
											Income statement
$3.6B	$3.9B	$4.3B	$4.6B	$3.6B	$4.0B	$4.3B	$4.8B	$5.4B	$5.9B	$6.1B	RevenueRevenue
4%	4%	5%	5%	4%	4%	4%	4%	4%	4%	4%	SG&A / revenueSG&A/rev
$588M	$578M	$555M	$612M	$564M	$560M	$540M	$732M	$865M	$1.1B	$540M	Operating incomeOp. inc.
16.1%	14.8%	13.0%	13.3%	15.8%	13.9%	12.4%	15.2%	16.1%	17.7%	8.9%	Operating marginOp. mgn
$248M	$271M	$292M	$359M	$284M	$412M	$271M	$352M	$456M	$566M	$609M	Net incomeNet inc.
40%	35%	29%	24%	21%	20%	27%	27%	25%	25%	25%	Effective tax rateTax rate
											Cash flow & returns
$640M	$658M	$762M	$635M	$705M	$716M	$706M	$851M	$1.0B	$1.2B	$1.2B	Operating cash flowOp. cash
$173M	$184M	$200M	$219M	$203M	$220M	$244M	$274M	$300M	$328M	$336M	DepreciationDeprec.
$193M	$156M	$185M	($57M)	$192M	$55M	$162M	$174M	$199M	$225M	$196M	Working capital & otherWC & other
$178M	$226M	$255M	$372M	$393M	$525M	$565M	$583M	$643M	$736M	$736M	CapexCapex
4.9%	5.8%	6.0%	8.1%	11.0%	13.1%	13.0%	12.1%	12.0%	12.4%	12.1%	Capex / revenueCapex/rev
$463M	$433M	$563M	$417M	$502M	$496M	$462M	$577M	$703M	$848M	$864M	Owner earningsOwner earn.
12.7%	11.1%	13.2%	9.0%	14.1%	12.4%	10.6%	12.0%	13.1%	14.3%	14.2%	Owner earnings marginOE mgn
$463M	$433M	$508M	$263M	$312M	$191M	$141M	$268M	$360M	$439M	$464M	Free cash flowFCF
12.7%	11.1%	11.9%	5.7%	8.7%	4.8%	3.2%	5.6%	6.7%	7.4%	7.7%	Free cash flow marginFCF mgn
$48M	$39M	$144M	$232M	$0	$1M	$0	—	—	—	$0	AcquisitionsAcquis.
$84M	$92M	$101M	$109M	$112M	$112M	$99M	$60M	$63M	$71M	$73M	Dividends paidDiv. paid
$66M	$38M	$0	$46M	$6M	$0	$0	$0	$31M	$158M	—	BuybacksBuybacks
10%	10%	11%	11%	10%	9%	10%	12%	15%	16%	8%	ROICROIC
34%	24%	23%	27%	18%	22%	21%	21%	22%	23%	24%	Return on equityROE
22%	16%	15%	18%	11%	16%	13%	18%	19%	20%	21%	Retained to equityRetained/eq
											Balance sheet
$41M	$54M	$69M	$60M	$186M	$49M	$22M	$69M	$85M	$72M	$111M	Cash & investmentsCash+inv
$432M	$460M	$460M	$499M	$563M	$502M	$525M	$600M	$593M	$613M	$676M	ReceivablesReceiv.
$68M	$78M	$90M	$95M	$115M	$134M	$133M	$170M	$171M	$178M	$204M	Accounts payablePayables
$364M	$381M	$370M	$404M	$448M	$368M	$392M	$430M	$422M	$435M	$472M	Operating working capitalOper. WC
$655M	$702M	$662M	$756M	$949M	$921M	$717M	$842M	$887M	$906M	$1.0B	Current assetsCur. assets
$476M	$518M	$673M	$721M	$717M	$749M	$576M	$656M	$841M	$836M	$877M	Current liabilitiesCur. liab.
1.4×	1.4×	1.0×	1.0×	1.3×	1.2×	1.2×	1.3×	1.1×	1.1×	1.2×	Current ratioCurr. ratio
$1.9B	$2.0B	$2.1B	$1.2B	$1.2B	$1.2B	$1.3B	$1.3B	$1.3B	$1.3B	$1.3B	GoodwillGoodwill
$4.7B	$4.9B	$5.2B	$6.1B	$6.4B	$6.9B	$5.6B	$6.1B	$6.5B	$7.1B	$7.3B	Total assetsAssets
$3.0B	$2.6B	$2.5B	$3.1B	$3.3B	$3.3B	$2.8B	$2.7B	$2.5B	$2.5B	$2.6B	Total debtDebt
$3.0B	$2.5B	$2.4B	$3.0B	$3.1B	$3.2B	$2.7B	$2.6B	$2.4B	$2.4B	$2.5B	Net debt / (cash)Net debt
3.4×	3.7×	3.8×	3.8×	3.1×	3.4×	3.1×	5.1×	6.3×	8.5×	4.4×	Interest coverageInt. cov.
$736M	$1.2B	$1.3B	$1.4B	$1.6B	$1.9B	$1.3B	$1.6B	$2.1B	$2.4B	$2.5B	Shareholders’ equityEquity
0.8%	1.2%	2.0%	2.5%	0.7%	0.7%	0.7%	1.1%	0.9%	1.0%	1.0%	Stock comp / revenueSBC/rev
											Per share
99.5M	99.3M	99.8M	99.4M	99.8M	100M	100M	101M	102M	102M	101M	Shares out (diluted)Shares
$36.61	$39.41	$42.86	$46.33	$35.73	$40.07	$43.31	$47.40	$52.58	$58.07	$60.30	Revenue / shareRev/sh
$2.49	$2.73	$2.93	$3.61	$2.85	$4.11	$2.70	$3.47	$4.46	$5.54	$6.06	EPS (diluted)EPS
$4.65	$4.36	$5.64	$4.19	$5.03	$4.95	$4.60	$5.69	$6.88	$8.29	$8.59	Owner earnings / shareOE/sh
$4.65	$4.36	$5.09	$2.64	$3.13	$1.91	$1.40	$2.64	$3.53	$4.30	$4.62	Free cash flow / shareFCF/sh
$0.84	$0.92	$1.01	$1.09	$1.12	$1.12	$0.99	$0.60	$0.61	$0.70	$0.73	Dividends / shareDiv/sh
$1.79	$2.27	$2.55	$3.75	$3.94	$5.24	$5.63	$5.76	$6.29	$7.21	$7.31	Cap. spending / shareCapex/sh
$7.40	$11.61	$12.79	$13.60	$15.91	$19.07	$13.05	$16.26	$20.23	$23.86	$25.07	Book value / shareBVPS

Per-share growththe realized rate an owner's share compounded

	9-yr	5-yr
Revenue / share	+5.3%/yr	+10.2%/yr
Owner earnings / share	+6.6%/yr	+10.5%/yr
EPS	+9.3%/yr	+14.2%/yr
Dividends / share	−2.1%/yr	−9.1%/yr
Capital spending / share	+16.8%/yr	+12.9%/yr
Book value / share	+13.9%/yr	+8.4%/yr

The record, charted

FY2016–2025

Each measure over its full record; the current point and the worst year marked.

Share count

102Mpeak FY2024

ROIC

16%low FY2021

Net debt ÷ owner earnings

2.9×peak FY2019

Owner earnings vs. net income

Owner earningsNet income

The accountant's number, and the cash an owner can take; the gap is the tell.

$848Mowner earningsvs.$566Mnet incomelow FY2019

Where the cash went

ReinvestBuybacksDividendsAcquisitionsRetainedBeyond op. cash

Each year's outlays against its operating cash: the mix, and how it drifts. The hatched cap is spending beyond that year's operating cash — financed from the balance sheet or borrowing, not operations.

FY2016FY2025

Owner-earnings bridge

FY2021–FY2025cash-flow statement, SEC EDGAR →

Net income is the accountant's number; owner earnings is the cash an owner could take out. The walk between them, off the cash-flow statement, and whether the gap is widening or holding.

In fiscal 2025 the business earned $848M of owner earnings, the operating cash left after the $328M it takes just to hold its position. It put $409M more into growth; free cash flow, after that spending, was $439M.

Reported net income$566M

Owner earnings$848M · 14% of revenue

	FY2025	FY2024	FY2023	FY2022	FY2021
Reported net income	$566M	$456M	$352M	$271M	$412M
Depreciation & amortizationnon-cash charge added back	+$328M	+$300M	+$274M	+$244M	+$220M
Stock-based compensationreal costnon-cash, but a real cost	+$57M	+$48M	+$51M	+$29M	+$29M
Working capital & othertiming of cash in and out, other non-cash items	+$225M	+$199M	+$174M	+$162M	+$55M
Cash from operations	$1.2B	$1.0B	$851M	$706M	$716M
Maintenance capital expenditurethe spending needed just to hold position and volume	−$328M	−$300M	−$274M	−$244M	−$220M
Owner earnings	$848M	$703M	$577M	$462M	$496M
Growth capital expenditurediscretionary; spent to get bigger, not to stand still	−$409M	−$343M	−$309M	−$321M	−$305M
Free cash flow	$439M	$360M	$268M	$141M	$191M
Owner-earnings marginowner earnings ÷ revenue	14%	13%	12%	11%	12%

Owner earnings is the cash an owner could pull out without starving the business: operating cash less the maintenance capital it must spend to hold its position (here about $328M, roughly its depreciation, the rate its assets wear out). The other $409M of its capital spending is growth it chose, not upkeep it owed; charged only with the maintenance it must do, the business earns well more than the year's free cash flow shows. The cash-flow statement also adds stock comp back as non-cash, but it is a real cost paid in shares; counted as the expense it is (less $57M), owner earnings is nearer $791M.

Maintenance capex is estimated as depreciation where a growing business invests above it; free cash flow is the figure the scorecard's free-cash margin reads.

III

Quality & stewardship

Returns, the balance sheet, capital allocation, and pay.

Owner’s Scorecard

FY2025 10-K · source on SEC EDGAR →

Will it survive?

Can it pay its interest? 4.4×

Adequate

Operating income $540M ÷ interest expense $123M

What this means
Comfortable in a normal year, but below the margin of safety Graham looked for. Worth checking how stable the coverage has been across a full cycle.
How heavy is the debt, net of cash? $2.4B · 4.5× operating profit

Heavy net debt

Cash $72M − debt $2.5B

What this means
Netting $72M of cash and short-term investments against $2.5B of debt leaves $2.4B owed, about 4.5× a year's operating profit (4.6× on the gross debt, before the cash). Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.
How long is cash tied up? —

Not enough data

What this means
The filing data didn't include the inputs for this check.

Is it a good business?

Return on invested capital 10%

Solid through the cycle

10-yr median, range 9%–16%; 8% latest = NOPAT $402M ÷ invested capital $4.9B

Industry peers: median 5%

What this means
The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 10 years (it ran 8% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.
Owner-earnings margin 12%

Solid through the cycle

10-yr median margin, range 9%–14%; latest $848M = operating cash $1.2B − maintenance capex $328M

Industry peers: median 5%

What this means
What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 14% of revenue this year, a 12% median across 10 years. It chose to put $409M more into growth, so free cash flow this year was $439M — the gap is investment, not weakness. Treating stock comp as the real expense it is (less $57M of SBC) leaves $791M.
Are earnings backed by cash? 2.08×

Cash-backed

Cash from ops $1.2B ÷ net income $566M

What this means
How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

Where do the earnings go? 27%

Reinvests most of it

Dividends + buybacks $229M ÷ Owner Earnings $848M

What this means
Of $848M Owner Earnings, $229M (27%) went back to shareholders, $71M dividends, $158M buybacks. Net of $57M stock comp, the real buyback was about $102M. Returning most of it is the mark of a mature business with little left to reinvest at a high return; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.
Investing or harvesting? 2.25×

Expanding

Capex $736M ÷ depreciation $328M

What this means
Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

Graham’s defensive tests · 4 of 6 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

Adequate size Pass

Revenue ≥ $2B · $5.9B

What this means
Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.
Strong liquidity Miss

Current ratio ≥ 2× · 1.08×

What this means
Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.
Conservative debt Miss

Debt ≤ working capital · $2.5B vs $70M WC

What this means
Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.
Earnings stability Pass

A profit every year (10-yr record) · no losses

What this means
Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.
Dividend record Pass

Uninterrupted dividends · paid every year (10)

What this means
An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.
Earnings growth Pass

Earnings +33% over the record · +69%

What this means
At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.
Moderate price —

P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price

What this means
Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $4.62/share (latest year $5.71), the averaged base the calculator's gate runs on, and book value is $24.58/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2016–2025

Whether the record’s returns held, and what the capital reinvested earned.

Profitable years 10 of 10

What this means
Never lost money over the record, the earnings stability Graham insisted on.
Return on capital ≥ 15% 1 of 10 yrs

What this means
A moat shows up as a high return on invested capital that holds year after year, not one good vintage.
Operating margin 15% → 16% (3-yr avg ends)

In the filing’s words The filing attributes gains to higher prices, but the margin in the record has not followed — the claim outruns the result here.

What this means
Through the cycle the operating margin held roughly steady — about 15% early, 16% lately, median 15%.
Reinvestment, incremental ROIC returns capital

What this means
The capital base barely grew: this business returns cash through dividends and buybacks rather than reinvesting. Judge it on the cash returned, not on compounding.
Owner earnings growth +6%/yr

What this means
Owner earnings grew about 6% a year over the record.
Worst year 2022 · 12.4% op. margin

What this means
Stayed profitable even in its hardest year, the resilience that survives recessions.
Share count +0.3%/yr

What this means
Roughly flat share count, little dilution, little buyback.
Dividend record paid

What this means
Paid a dividend in 10 of the years on record.

Does AI threaten the moat?

Moderate contestability

AI is likely to reshape costs and some products here without clearly contesting or sparing the core moat; how the company itself frames it is the tell.

In its own filing Raised, but not as a competitor

The filing raises AI among its risks, but in other terms (security, regulation, energy or the like), not as a competitor to its product; it frames AI mainly as a capability.

The question is whether a moat the record shows as durable outlasts a technology that lowers the cost of part of what the firm sells. The durability is read in the record above, the filing's own framing of AI beside it; the industry label decides nothing on its own.

Read from the filing's own risk factors, paired with the industry's structure under its SIC code; the durability is read above, the price below.

All figures as filed; the source filing is linked above.

Current Position

as of the latest quarter, Mar 31, 2026

Can the business pay what it owes this year, off the freshest balance sheet: the quality of the assets, the debt actually coming due, and what a low ratio means here.

Current assets$1.0B

Cash & short-term investments$111M
Receivables$676M
Other current assets$243M

Current liabilities$877M

Debt due within a year($19M)
Accounts payable$204M
Other current liabilities$692M

Current ratio1.17×all current assets ÷ what's due · Graham looked for 2×

Quick ratio1.17×stricter: inventory excluded

Cash ratio0.13×strictest: cash alone against what's due

Working capital$152Mthe cushion left after near-term bills

Revenue, latest quarter vs. a year ago+9.0%the freshest read on whether the business is still growing

Current ratio, recent quarters1.4× → 1.2×

Deeper floors

Tangible book value$904Mequity stripped of goodwill & intangibles

Net current asset value($2.9B)Graham's net-net: current assets less all liabilities

Debt incl. operating leases$1.4B$216M of it operating leases

From the company's latest filing.

Debt maturity

the debt note, SEC EDGAR →

Not how much it owes, but when it falls due, and against what. The ladder the company files, beside cash on hand and a year's owner earnings.

'26$44M

'27$177M

'28$836M

'29$45M

'30$850M

later$567M

Bars scaled to the largest single year; “later” is everything due after 2030, shown apart since it dwarfs the years.

Due in the next 12 months$44Mthe first rung: what must be repaid or rolled over within the year

Within two years$221Mthe near wall, the part most exposed to today’s credit conditions

Biggest single year$850Min 2030the lumpiest maturity, where a refinancing, if needed, is largest

Total scheduled principal$2.5Bevery year plus what lies beyond, as the footnote totals it

Against what the business has and earns

Cash & short-term investments, Mar 31, 2026$111M

One year of owner earnings (FY2025)$848M

Together, against $44M due next year22.0×

Cash on hand as of Mar 31, 2026 plus a year’s owner earnings comes to $958M against the $44M due in the twelve months after the Dec 31, 2025 schedule: 22 times it.

Maturity schedule extracted from the company’s Dec 31, 2025 annual report and reconciled to the total the table states.

How the cash was used, 2016–2025

Over the record, the business generated $7.9B of operating cash; how management split it reads as a reinvestor, most operating cash is plowed back into the business.

Reinvested$4.5B · 57%
Dividends$902M · 11%
Buybacks$345M · 4%
Retained (debt / cash)$2.1B · 27%

Returned to owners$1.2B
23% of the owner earnings the business produced over the span, $902M as dividends and $345M as buybacks.
Average price paid for buybacks—
Buybacks ran $345M over the span, but the filings don't tag the share count needed to deduce the average price paid.
Net change in share count1.1%
The diluted count rose from 100M to 101M: issuance (stock pay, deals) outran any buybacks, so owners were diluted on net.
Dividend record$0.70/sh
Paid in 10 of the years on record, the per-share dividend shrinking about 2% a year. It was cut at least once along the way.
Return on what it retained10%
Of the earnings it kept rather than paid out ($2.3B over the span), annual owner earnings (first three years vs last three) grew $223M, so each retained $1 added about 0.10 of yearly owner earnings. Buffett's test, run on owner earnings instead of market value.

Buybacks are gross of stock issued to staff; the share-count line above is the net of that, the figure that decides whether owners gained. The average price paid blends a year of purchases (and any accelerated repurchase), so it is close, not exact. The record of where the cash went and on what terms.

Acquisitions & goodwill

from the balance sheet & the 10-year cash-flow record

Goodwill grows only when a company acquires and falls only when it concedes it overpaid. The size of that bet, the cash put into buying rather than building, and how much has already been written off.

Goodwill & intangibles$1.6B23% of all assets; the premium carried on the balance sheet for businesses acquired

Against book equity54%goodwill is this share of book equity; the rest is the company’s own retained and paid-in capital

Cash spent acquiring$463Mover 10 years buying other businesses, against $4.5B of capital spent building

None written down over the record; the goodwill is still carried at full cost. That is the deals holding their value on the books so far; whether they keep doing so is the test an owner watches, since the write-down, when it comes, is the admission the price was too high.

Goodwill, acquired intangibles and equity from the latest balance sheet; acquisition spend and write-downs summed across the 10-year record, from the company's own filings.

Management, ownership & pay

read the proxy →

From the proxy: how much of the business the people running it own, and how they are paid, beside what the business earned for its owners in the same years.

Fiscal year	Chief executive	Pay, as filed	“Actually paid”	Owner earnings
2021	Mr. Tarr	$8.3M	$6.2M	$496M
2022	Mr. Tarr	$7.7M	$9.9M	$462M
2023	Mr. Tarr	$8.8M	$14.1M	$577M
2024	Mr. Tarr	$9.3M	$17.9M	$703M
2025	Mr. Tarr	$10.3M	$20.6M	$848M

Both pay figures are the company’s own, from the pay-versus-performance table its proxy statement files. “As filed” is the Summary Compensation Table total: salary, bonus, and equity awards at their value on the day of grant. “Actually paid” is the SEC’s prescribed recalculation, which re-marks those equity awards to what they became as they vested; it can swing far above or below the filed figure in either direction, and negative years occur. Owner earnings are the whole business's, from the record above, for the same fiscal years.

Insider ownership1.8%
The stake all directors and executive officers hold together, per the 2026 proxy: skin in the game, the first thing Munger reads.
Stock-based compensation$57M
The slice of the business handed to employees in shares this year, 1% of revenue, equal to 10% of operating profit. Buffett's oldest accounting fight: this is compensation, compensation is an expense, real whether or not the headline earnings admit it. One trap: the cash-flow statement adds SBC back, so the operating cash, and the owner earnings drawn from it, are flattered by exactly this amount; counted as the cost it is, what an owner keeps is lower.

Inverting the record

Invert: instead of why Encompass Health is a good business, the question is what would make owning it a mistake, and whether those marks are in the record. Disconfirming tests across 2016–2025.

None of the 5 tests turned up a mark; each came back clean. A clean panel says only that these particular ways of being wrong are not written into the record.

Each test came back clean

Is it less profitable than it was?
Did the share count rise anyway?
Did debt outgrow the business?
Did reported profit become cash?
Did receivables and inventory outpace sales?

Each test is read from the filings and is noisy alone; a flag can mark a cyclical trough or a year of heavy investment as easily as a problem. The filing says which.

What an owner would ask, FY2025

read the 10-K →

Which reported numbers are a judgment call?
Management names Revenue recognition, Income taxes, Insurance reserves, Contingencies as critical estimates
each rests partly on management's judgment; the filing's note sets out the assumptionsverify →

The questions the record and the charts do not answer on their own; each carries the figure and the place to look.

Peers, Health Care Providers & Services

The same industry, side by side on owner economics. Each figure is a through-cycle median, so a peak or trough year can’t distort it; the group median at the foot is the line to read each against.

Company	Revenue	Gross margin	Op. margin	ROIC	Owner earn. margin
UHSUniversal Health	$17.4B	—	10.8%	10%	7%
CYHCommunity Health Systems Inc.	$12.5B	84%	5.8%	5%	0%
EHCEncompass Health	$5.9B	—	15.0%	10%	13%
PACSPACS Group Inc.	$5.3B	—	6.3%	21%	5%
ENSGEnsign Group	$5.0B	20%	7.7%	17%	5%
ACHCAcadia Healthcare Company Inc.	$3.3B	—	13.1%	5%	11%
AHCOAdaptHealth Corp.	$3.2B	18%	6.6%	4%	7%
BKDBrookdale Senior Living Inc.	$3.2B	—	-1.3%	-1%	-1%
Group median	—	—	7.1%	8%	6%

The price

What a price has to assume.

What the price implies

reverse-DCF

Type today's close and see the owner-earnings growth you'd have to believe to justify it, beside what Encompass Health has delivered.

Today’s price $

Through the cycle, Encompass Health earns about $744M on its 12.5% median owner-earnings margin. This year’s 14.3% margin runs in line with that. Normalize, below, values the price on that through-cycle figure rather than the latest year.

Base Normalize · through-cycle ($744M) Net of stock comp (−$59M) Steady-state · maintenance capex ($872M)

—

The assumptions Required return 9% Years of high growth 10 Terminal growth 2.5%

9.0% = the 4.55% 10-year Treasury (Jul 15, 2026) + 4.45 points of equity premium. The rate you require is yours to set.

Enter a price above to run it.

Implied by the price—

Owner-earnings growth · ’21→’25+13%/yr

Owner-earnings growth · ’16→’25−1%/yr

Owner-earnings yield—

P/E (3-yr earnings ’23–’25)—

P/B—

Graham’s price gate—

Graham capped the multiple at 15×; Buffett and Munger let that rule go: a wonderful business can deserve 50× if the thesis holds. The gate marks the bargain-hunter's floor.

Against a high-grade bond: Graham’s yardstick bond yield%

Prefilled with the 10-year Treasury (4.55%, as of Jul 15, 2026). Edit it for today’s exact figure, or a AAA corporate yield.

Graham measured a stock against the bond you could own instead, the heart of his margin of safety. Enter a price above to weigh the owner-earnings yield against this bond.

Free cash flow $464M on 99M shares outstanding, per the 10-Q cover, as of 2026-04-24; net debt $2.5B. The base is the latest year by default; Normalize values it on the through-cycle median owner-earnings margin (to avoid paying on a peak year). Net of stock comp treats option pay as the expense it is. Capex ($736M) runs well above depreciation ($336M), so this is a build-out; Steady-state swaps total capex for maintenance (≈ depreciation), lifting the base to about $872M, the cash it would throw off if it stopped expanding. The dials set the multiple a growth belief justifies; the price, and every dollar on this page, is yours.

Weigh EHC against another business →

Cite: Owner Scorecard, "Encompass Health (EHC), the owner's record," https://ownerscorecard.com/c/EHC, data as of 2026-07-09.

Manual order: ← EGY its page in the Manual EIG →

Industry order: ← DVA the Health Care Providers & Services chapter ENSG →