2002 · Nisshin Seifun Group

Will it survive?

• Can it pay its interest? 12.2×
  Comfortable
  Operating income ¥46.7B ÷ interest expense ¥3.8B
  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? +¥2.2B
  Net cash
  Cash ¥91.4B + ST investments ¥2.4B − debt ¥91.6B
  What this means

  Cash and short-term investments exceed every dollar of debt by ¥2.2B, on net the company owes nothing, and can act from strength when others can't. 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? 78d
  Long (60+ days)
  DSO 48 + DIO 70 − DPO 39 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 6%
  Below average through the cycle
  10-yr median, range 5%–10%; 10% latest = NOPAT ¥36.9B ÷ invested capital ¥367.3B
  Industry peers: median 9%
  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 10% 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 4%
  Thin through the cycle
  10-yr median margin, range 1%–6%; latest ¥42.6B = operating cash ¥69.2B − maintenance capex ¥26.6B
  Industry peers: median 6%
  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 5% of revenue this year, a 4% median across 10 years. It chose to put ¥14.6B more into growth, so free cash flow this year was ¥28.0B — the gap is investment, not weakness.

• Are earnings backed by cash? 2.12×
  Cash-backed
  Cash from ops ¥69.2B ÷ net income ¥32.6B
  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? 83%
  Returns about half
  Dividends + buybacks ¥35.3B ÷ Owner Earnings ¥42.6B
  What this means

  Of ¥42.6B Owner Earnings, ¥35.3B (83%) went back to shareholders, ¥17.4B dividends, ¥17.9B 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? 1.55×
  Expanding
  Capex ¥41.2B ÷ depreciation ¥26.6B
  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.

Durability & moat, 2017–2026

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 5% → 5% (3-yr avg ends)
  What this means

  Through the cycle the operating margin held roughly steady — about 5% early, 5% lately, median 5%.

• 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 2021 · 4.0% op. margin
  What this means

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

• Share count −0.8%/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.