DRI, Darden Restaurants Inc.

Will it survive?

• Can it pay its interest? 11.8×
  Comfortable
  Operating income $1.4B ÷ interest expense $116M
  What this means

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.

• How heavy is the debt, net of cash? $1.9B · 1.4× operating profit
  Modest net debt
  Cash $240M − debt $2.1B
  What this means

  Netting $240M of cash and short-term investments against $2.1B of debt leaves $1.9B owed, about 1.4× a year's operating profit (1.6× on the gross debt, before the cash). It also holds $22M in longer-dated marketable securities; counting those, it sits at $1.9B of net debt. 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? -7d
  Negative, funded by others
  DSO 3 + DIO 23 − DPO 32 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. A negative cycle is a quiet moat: suppliers and customers fund the operation (Buffett's “float”), the company grows on other people's money.

Is it a good business?

• Return on invested capital 27%
  Very high (≥25%) through the cycle
  9-yr median, range 18%–39%; 29% latest = NOPAT $1.2B ÷ invested capital $4.2B
  Industry peers: median 24%
  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 9 years (it ran 29% 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 9%
  Solid through the cycle
  10-yr median margin, range 5%–13%; latest $1.1B = operating cash $1.7B − maintenance capex $645M
  Industry peers: median 9%
  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 9% of revenue this year, a 9% median across 10 years. Treating stock comp as the real expense it is (less $79M of SBC) leaves $983M.

• Are earnings backed by cash? 1.63×
  Cash-backed
  Cash from ops $1.7B ÷ net income $1.0B
  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? 101%
  Returned more than it generated
  Dividends + buybacks $1.1B ÷ Owner Earnings $1.1B
  What this means

  The company returned more than it generated: against $1.1B of Owner Earnings, $1.1B (101%) went back to shareholders, $659M dividends, $418M buybacks — the excess came from the balance sheet or borrowing, not the year's operations. Net of $79M stock comp, the real buyback was about $339M. Sustained, that pattern draws down cash or adds debt; the net-debt line above shows where it stands.

• Investing or harvesting? 1.25×
  Expanding
  Capex $645M ÷ depreciation $516M
  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 · 3 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 · $12.1B
  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× · 0.42×
  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 · $2.1B vs ($1.3B) 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 Near
  A profit every year (10-yr record) · 1 loss year
  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 · +111%
  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 $8.90/share (latest year $9.16), the averaged base the calculator's gate runs on, and book value is $20.18/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 9 of 10
  What this means

  Lost money in 1 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 9 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 9% → 11% (3-yr avg ends)

  In the filing’s words The record and the words agree: the margin widened and the filing attributes the gain to its own pricing, not volume alone.

  What this means

  Through the cycle the operating margin widened — about 9% early to 11% lately, median 9% — pricing power intact or improving.

• Reinvestment, incremental ROIC —
  What this means

  The reinvested base moved too little against the change in profit to read a reliable return on it here — the figure would be a small-denominator artifact, not a moat. Judge this one on the owner-earnings record and the cash it returns instead.

• Owner earnings growth +7%/yr
  What this means

  Owner earnings grew about 7% a year over the record.

• Worst year 2020 · 0.6% op. margin
  What this means

  Stayed profitable even in its hardest year, the resilience that survives recessions.

• Share count −1.0%/yr
  What this means

  The share count is shrinking, buybacks are quietly growing your slice of the business.

• Dividend record rising
  What this means

  Paid and raised the dividend across the record, the continuity Graham prized.