2914 · Japan Tobacco

Will it survive?

• Can it pay its interest? 4.4×
  Adequate
  Operating income ¥867.0B ÷ interest expense ¥195.2B
  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? ¥826.6B · 1.0× operating profit
  Modest net debt
  Cash ¥831.1B + ST investments ¥21.0B − debt ¥1.68T
  What this means

  Netting ¥852.1B of cash and short-term investments against ¥1.68T of debt leaves ¥826.6B owed, about 1.0× a year's operating profit (1.9× 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
  Negative, funded by others
  DSO 67 + DIO 9 − DPO 171 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 13%
  Solid through the cycle
  10-yr median, range 6%–41%; 14% latest = NOPAT ¥685.0B ÷ invested capital ¥4.93T
  Industry peers: median 21%
  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 14% 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 16%
  High through the cycle
  8-yr median margin, range 11%–22%; latest ¥370.9B = operating cash ¥514.1B − maintenance capex ¥143.2B
  Industry peers: median 36%
  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 11% of revenue this year, a 16% median across 8 years.

• Are earnings backed by cash? 1.01×
  Cash-backed
  Cash from ops ¥514.1B ÷ net income ¥510.2B
  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? 97%
  Returns most of it
  Dividends + buybacks ¥358.5B ÷ Owner Earnings ¥370.9B
  What this means

  Of ¥370.9B Owner Earnings, ¥358.5B (97%) went back to shareholders, ¥356.9B dividends, ¥1.6B 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? 0.73×
  Harvesting
  Capex ¥143.2B ÷ depreciation ¥195.9B
  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, 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% 4 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 14% → 20% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 14% early to 20% lately, median 22% — pricing power intact or improving.

• Reinvestment, incremental ROIC 17%
  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.

• Owner earnings growth +2%/yr
  What this means

  Owner earnings grew about 2% a year over the record.

• Worst year 2017 · 7.9% op. margin
  What this means

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

• Share count +0.0%/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.