NOC, Northrop Grumman Corporation

Will it survive?

• Can it pay its interest? 6.8×
  Comfortable
  Operating income $4.5B ÷ interest expense $665M
  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? $11.0B · 2.4× operating profit
  Meaningful net debt
  Cash $4.4B + ST investments $250M − debt $15.7B
  What this means

  Netting $4.7B of cash and short-term investments against $15.7B of debt leaves $11.0B owed, about 2.4× a year's operating profit (3.5× on the gross debt, before the cash). It also holds $310M in longer-dated marketable securities; counting those, it sits at $10.7B 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? -45d
  Negative, funded by others
  DSO 12 + DIO 39 − DPO 96 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 15%
  High through the cycle
  10-yr median, range 9%–25%; 13% latest = NOPAT $3.7B ÷ invested capital $28.0B
  Industry peers: median -20%
  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 13% 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 8%
  Solid through the cycle
  10-yr median margin, range 4%–10%; latest $3.3B = operating cash $4.8B − maintenance capex $1.4B
  Industry peers: median -13%
  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 8% of revenue this year, a 8% median across 10 years. Treating stock comp as the real expense it is (less $119M of SBC) leaves $3.2B.

• Are earnings backed by cash? 1.14×
  Cash-backed
  Cash from ops $4.8B ÷ net income $4.2B
  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? 88%
  Returns about half
  Dividends + buybacks $2.9B ÷ Owner Earnings $3.3B
  What this means

  Of $3.3B Owner Earnings, $2.9B (88%) went back to shareholders, $1.3B dividends, $1.6B buybacks. Net of $119M stock comp, the real buyback was about $1.5B. 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? 0.99×
  Maintaining
  Capex $1.4B ÷ depreciation $1.5B
  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 · $42.0B
  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× · 1.10×
  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 · $15.7B vs $1.4B 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 Near
  Earnings +33% over the record · +28%
  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 $24.44/share (latest year $29.44), the averaged base the calculator's gate runs on, and book value is $117.39/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% 6 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 13% → 9% (3-yr avg ends)
  What this means

  Through the cycle the operating margin slipped — about 13% early to 9% lately, median 11% — competition or costs are biting in.

• Reinvestment, incremental ROIC 4%
  What this means

  Reinvested capital came back at only a modest incremental return — near the cost of capital, where extra growth adds little per dollar. The record shows whether it is a soft stretch or a thinning moat.

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

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

• Worst year 2023 · 6.5% op. margin
  What this means

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

• Share count −2.5%/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.

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

  The filing reasons in an owner’s terms — per-share, return on capital, the long term — and the record has held; the words and the results are of a piece.