VSEC, VSE Corporation

Will it survive?

• Can it pay its interest? 4.4×
  Adequate
  Operating income $90M ÷ interest expense $21M
  What this means

  Comfortable in a normal year, but below the margin of safety Graham looked for. Worth checking how stable the coverage has been across a full cycle.

• How heavy is the debt, net of cash? $223M · 2.5× operating profit
  Meaningful net debt
  Cash $69M − debt $293M
  What this means

  Netting $69M of cash and short-term investments against $293M of debt leaves $223M owed, about 2.5× a year's operating profit (3.3× 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? -131d
  Negative, funded by others
  DSO 63 + DIO 0 − DPO 193 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 6%
  Below average through the cycle
  9-yr median, range -0%–10%; the latest year is left out — large non-operating charges put its operating line well above pretax profit
  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 9 years, 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 through the cycle
  10-yr median margin, range -7%–6%; latest $6M = operating cash $27M − maintenance capex $21M
  Industry peers: median 11%
  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 1% median across 10 years. Treating stock comp as the real expense it is (less $13M of SBC) leaves ($7M).

• Are earnings backed by cash? 2.31×
  Cash-backed
  Cash from ops $27M ÷ net income $12M

  In the filing’s words Read against the cash, reported earnings have run ahead of the operating cash the business generated over the record, and a manipulation screen of eight balance-sheet ratios trips on it. For an inventory- or content-heavy grower that can be cash tied up in real assets as it expands; elsewhere it can mean the earnings lean on accounting estimates — the cash-flow statement against the income statement is where to tell which.

  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? 145%
  Returned more than it generated
  Dividends + buybacks $8M ÷ Owner Earnings $6M
  What this means

  The company returned more than it generated: against $6M of Owner Earnings, $8M (145%) went back to shareholders, $8M dividends, $0 buybacks — the excess came from the balance sheet or borrowing, not the year's operations. Sustained, that pattern draws down cash or adds debt; the net-debt line above shows where it stands.

• Investing or harvesting? 0.53×
  Harvesting
  Capex $21M ÷ depreciation $40M
  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 Near
  Revenue ≥ $2B · $1.1B
  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 Pass
  Current ratio ≥ 2× · 3.76×
  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 · $293M vs $656M 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 (10-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 (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 · −34%
  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 $0.79/share (latest year $0.42), the averaged base the calculator's gate runs on, and book value is $51.28/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 9 of 10
  What this means

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

• Return on capital ≥ 15% 0 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 7% → 8% (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

  Through the cycle the operating margin held roughly steady — about 7% early, 8% lately, median 7%.

• Reinvestment, incremental ROIC 0%
  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.

• Worst year 2021 · −0.6% op. margin
  What this means

  Operations went underwater in 2021, understand why before trusting the good years.

• Dividend record rising
  What this means

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