VRT, Vertiv Holdings LLC

Will it survive?

• Can it pay its interest? 21.3×
  Comfortable
  Operating income $1.8B ÷ interest expense $86M
  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? $1.2B · 0.6× operating profit
  Modest net debt
  Cash $1.7B − debt $2.9B
  What this means

  Netting $1.7B of cash and short-term investments against $2.9B of debt leaves $1.2B owed, about 0.6× a year's operating profit (1.6× 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? 94d
  Long (60+ days)
  DSO 111 + DIO 82 − DPO 98 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 5%
  Below average through the cycle
  4-yr median, range 3%–27%; 27% latest = NOPAT $1.4B ÷ invested capital $5.1B
  Industry peers: median 14%
  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 4 years (it ran 27% 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 19%
  High, recently turned positive
  latest $1.9B = operating cash $2.1B − maintenance capex $220M; positive each of the last 3 years, after an earlier loss stretch (8-yr median 3%)
  Industry peers: median 15%
  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 19% of revenue this year, a 3% median across 8 years. Treating stock comp as the real expense it is (less $46M of SBC) leaves $1.8B.

• Are earnings backed by cash? 1.59×
  Cash-backed
  Cash from ops $2.1B ÷ net income $1.3B
  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? 4%
  Reinvests most of it
  Dividends + buybacks $67M ÷ Owner Earnings $1.9B
  What this means

  Of $1.9B Owner Earnings, $67M (4%) went back to shareholders, $67M dividends, $0 buybacks. 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? 0.71×
  Harvesting
  Capex $220M ÷ depreciation $309M
  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 · 1 of 5 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 · $10.2B
  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 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 Near
  Debt ≤ working capital · $2.9B vs $2.4B 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 Miss
  A profit every year (9-yr record) · 4 loss years
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record Miss
  Uninterrupted dividends · 6 of 9 yrs
  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 —
  Earnings +33% over the record · —
  What this means

  Earnings were negative early in the record, a growth rate isn't meaningful.

• 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 $1.99/share (latest year $3.47), the averaged base the calculator's gate runs on, and book value is $10.26/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 5 of 9
  What this means

  Lost money in 4 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 3 of 7 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 3% → 16% (3-yr avg ends)

  In the filing’s words Input costs rose and the filing says it recovered them in price — consistent with the margin holding here.

  What this means

  Through the cycle the operating margin widened — about 3% early to 16% lately, median 5% — pricing power intact or improving.

• Reinvestment, incremental ROIC 59%
  What this means

  Every extra dollar the business reinvested came back at a high incremental return — the lens GBM read for a moat that reinvests rather than merely harvests. The record and the 10-K are where you check whether the rate holds.

• Worst year 2018 · 0.6% op. margin
  What this means

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

• Dividend record rising
  What this means

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

• How management talks about it Promotional
  What this means

  The record is compounding, but the filing leans on a promoter’s vocabulary rather than the per-share, return-on-capital terms an owner uses. The results back the talk here; the register is still worth noting.