LEVI, Levi Strauss & Co

Will it survive?

• Can it pay its interest? 13.9×
  Comfortable
  Operating income $678M ÷ interest expense $49M
  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? $190M · 0.3× operating profit
  Modest net debt
  Cash $758M + ST investments $91M − debt $1.0B
  What this means

  Netting $849M of cash and short-term investments against $1.0B of debt leaves $190M owed, about 0.3× a year's operating profit (1.5× 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? 142d
  Long (60+ days)
  DSO 45 + DIO 188 − DPO 91 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash.

Is it a good business?

• Return on invested capital 23%
  High through the cycle
  9-yr median, range -5%–35%; 22% latest = NOPAT $552M ÷ invested capital $2.6B
  Industry peers: median 18%
  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 22% 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 5%
  Solid through the cycle
  9-yr median margin, range 1%–11%; latest $308M = operating cash $530M − maintenance capex $221M
  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 5% of revenue this year, a 5% median across 9 years. Treating stock comp as the real expense it is (less $82M of SBC) leaves $227M.

• Are earnings backed by cash? 0.92×
  Mostly cash-backed
  Cash from ops $530M ÷ net income $578M
  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? 79%
  Returns about half
  Dividends + buybacks $243M ÷ Owner Earnings $308M
  What this means

  Of $308M Owner Earnings, $243M (79%) went back to shareholders, $213M dividends, $31M buybacks. But the buybacks barely exceed stock issued to employees ($82M SBC), net of dilution, little was truly returned. 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? 1.07×
  Maintaining
  Capex $221M ÷ depreciation $206M
  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 · $6.3B
  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 Near
  Current ratio ≥ 2× · 1.55×
  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 Pass
  Debt ≤ working capital · $1.0B vs $1.1B 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 (9-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 (9)
  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 Near
  Earnings +33% over the record · +8%
  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 $0.89/share (latest year $1.49), the averaged base the calculator's gate runs on, and book value is $5.87/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, 2017–2025

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

• Profitable years 8 of 9
  What this means

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

• Return on capital ≥ 15% 6 of 9 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 10% → 7% (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

  The recent-years average (7%) sits below the early years (10%), but the latest year (11%) is back near the early level: a cyclical trough dragging the window down, not a one-way slide. The through-cycle median is 10% — read it across the cycle, not on the dip.

• Reinvestment, incremental ROIC −1%
  What this means

  Reinvested capital came back at a negative incremental return over this window — the invested base grew while operating profit did not. The filings show where it went.

• Owner earnings growth +4%/yr
  What this means

  Owner earnings grew about 4% a year over the record.

• Worst year 2020 · −1.9% op. margin
  What this means

  Operations went underwater in 2020, understand why before trusting the good years.

• Share count +0.5%/yr
  What this means

  Roughly flat share count, little dilution, little buyback.

• Dividend record rising
  What this means

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

• How management talks about it Owner’s terms
  What this means

  The record and the register agree: capital is compounding and the filing reasons in an owner’s terms — per-share value, return on capital, the long term — not a promoter’s.