SCL, Stepan

Will it survive?

• Can it pay its interest? 6.9×
  Comfortable
  Operating income $79M ÷ interest expense $11M
  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? $494M · 6.3× operating profit
  Heavy net debt
  Cash $133M − debt $627M
  What this means

  Netting $133M of cash and short-term investments against $627M of debt leaves $494M owed, about 6.3× a year's operating profit (8.0× 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? 67d
  Long (60+ days)
  DSO 61 + DIO 53 − DPO 46 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 11%
  Solid through the cycle
  10-yr median, range 3%–15%; 4% latest = NOPAT $61M ÷ invested capital $1.7B
  Industry peers: median 15%
  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 4% 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 1%
  Thin, recently turned positive
  latest $25M = operating cash $148M − maintenance capex $123M; positive each of the last 3 years, after an earlier loss stretch (10-yr median 3%)
  Industry peers: median 8%
  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 1% of revenue this year, a 3% median across 10 years. Treating stock comp as the real expense it is (less $6M of SBC) leaves $19M.

• Are earnings backed by cash? 3.15×
  Cash-backed
  Cash from ops $148M ÷ net income $47M
  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? 236%
  Returned more than it generated
  Dividends + buybacks $60M ÷ Owner Earnings $25M
  What this means

  The company returned more than it generated: against $25M of Owner Earnings, $60M (236%) went back to shareholders, $35M dividends, $25M buybacks — the excess came from the balance sheet or borrowing, not the year's operations. Net of $6M stock comp, the real buyback was about $19M. Sustained, that pattern draws down cash or adds debt; the net-debt line above shows where it stands.

• Investing or harvesting? 0.97×
  Maintaining
  Capex $123M ÷ depreciation $126M
  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 · $2.3B
  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 Miss
  Current ratio ≥ 2× · 1.29×
  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 · $627M vs $192M 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 Miss
  Earnings +33% over the record · −54%
  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 $2.02/share (latest year $2.06), the averaged base the calculator's gate runs on, and book value is $54.77/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% 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 8% → 3% (3-yr avg ends)

  In the filing’s words The filing attributes gains to higher prices but names price competition too — and the margin slipped, so the pressure is winning here.

  What this means

  Through the cycle the operating margin slipped — about 8% early to 3% lately, median 7% — competition or costs are biting in.

• Reinvestment, incremental ROIC −5%
  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 −14%/yr
  What this means

  Owner earnings shrank about 14% a year over the record.

• Worst year 2023 · 2.5% op. margin
  What this means

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

• Share count −0.1%/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.