3099 · Isetan Mitsukoshi Holdings

Will it survive?

• Can it pay its interest? 94.0×
  Comfortable
  Operating income ¥80.0B ÷ interest expense ¥851M
  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? +¥10.0B
  Net cash
  Cash ¥77.3B + ST investments ¥874M − debt ¥68.2B
  What this means

  Cash and short-term investments exceed every dollar of debt by ¥10.0B, 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? -102d
  Negative, funded by others
  DSO 110 + DIO 0 − DPO 211 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 3%
  Below average through the cycle
  10-yr median, range -3%–11%; 11% latest = NOPAT ¥63.2B ÷ invested capital ¥564.0B
  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 11% 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 12%
  Solid, recently turned positive
  latest ¥65.8B = operating cash ¥90.7B − maintenance capex ¥24.8B; positive each of the last 3 years, after an earlier loss stretch (10-yr median 4%)
  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 12% of revenue this year, a 4% median across 10 years.

• Are earnings backed by cash? 1.19×
  Cash-backed
  Cash from ops ¥90.7B ÷ net income ¥76.1B
  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? 86%
  Returns about half
  Dividends + buybacks ¥56.6B ÷ Owner Earnings ¥65.8B
  What this means

  Of ¥65.8B Owner Earnings, ¥56.6B (86%) went back to shareholders, ¥21.5B dividends, ¥35.1B 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? 1.02×
  Maintaining
  Capex ¥24.8B ÷ depreciation ¥24.4B
  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 7 of 10
  What this means

  Lost money in 3 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 2% → 13% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 2% early to 13% lately, median 2% — pricing power intact or improving.

• 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 +9%/yr
  What this means

  Owner earnings grew about 9% a year over the record.

• Worst year 2021 · −2.6% op. margin
  What this means

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

• 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.