NFG, National Fuel Gas

Will it survive?

• Can it pay its interest? 5.2×
  Comfortable
  Operating income $813M ÷ interest expense $156M
  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? $2.7B · 3.3× operating profit
  Meaningful net debt
  Cash $43M − debt $2.7B
  What this means

  Netting $43M of cash and short-term investments against $2.7B of debt leaves $2.7B owed, about 3.3× a year's operating profit. 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? -292d
  Negative, funded by others
  DSO 23 + DIO 0 − DPO 315 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. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital 11%
  Solid through the cycle
  9-yr median, range -9%–34%; 11% latest = NOPAT $608M ÷ invested capital $5.8B
  Industry peers: median 6%
  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 11% 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 26%
  High through the cycle
  10-yr median margin, range 14%–37%; latest $643M = operating cash $1.1B − maintenance capex $457M
  Industry peers: median 10%
  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 29% of revenue this year, a 26% median across 10 years. It chose to put $456M more into growth, so free cash flow this year was $187M — the gap is investment, not weakness. Treating stock comp as the real expense it is (less $20M of SBC) leaves $624M.

• Are earnings backed by cash? 2.12×
  Cash-backed
  Cash from ops $1.1B ÷ net income $519M
  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? 38%
  Reinvests most of it
  Dividends + buybacks $243M ÷ Owner Earnings $643M
  What this means

  Of $643M Owner Earnings, $243M (38%) went back to shareholders, $188M dividends, $54M buybacks. Net of $20M stock comp, the real buyback was about $35M. 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? 2.00×
  Expanding
  Capex $913M ÷ depreciation $457M
  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 · $2.2B
  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× · 0.44×
  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 · $2.7B vs ($515M) 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 Miss
  A profit every year (10-yr record) · 2 loss years
  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 · +179%
  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 $3.76/share (latest year $5.46), the averaged base the calculator's gate runs on, and book value is $32.56/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 8 of 10
  What this means

  Lost money in 2 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 2 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 14% → 27% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 14% early to 27% lately, median 30% — pricing power intact or improving.

• 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 +5%/yr
  What this means

  Owner earnings grew about 5% a year over the record.

• Worst year 2016 · −28.7% op. margin
  What this means

  Operations went underwater in 2016, understand why before trusting the good years.

• Share count +0.8%/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.