4005 · Sumitomo Chemical

Will it survive?

• Can it pay its interest? 2.4×
  Adequate
  Operating income ¥151.7B ÷ interest expense ¥63.8B
  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? ¥942.9B · 6.2× operating profit
  Heavy net debt
  Cash ¥208.6B − debt ¥1.15T
  What this means

  Netting ¥208.6B of cash and short-term investments against ¥1.15T of debt leaves ¥942.9B owed, about 6.2× a year's operating profit (7.6× 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? 32d
  Tight
  DSO 95 + DIO 39 − DPO 102 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
  10-yr median, range -17%–13%; 6% latest = NOPAT ¥119.9B ÷ invested capital ¥1.95T
  Industry peers: median 16%
  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 6% 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 —
  Not enough data
  Industry peers: median 2%
  What this means

  The filing data didn't include the inputs for this check.

• Are earnings backed by cash? 3.85×
  Cash-backed
  Cash from ops ¥234.8B ÷ net income ¥60.9B
  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? —
  Not enough data
  What this means

  The filing data didn't include the inputs for this check.

• Investing or harvesting? —
  Not enough data
  What this means

  The filing data didn't include the inputs for this check.

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 7% → −2% (3-yr avg ends)
  What this means

  The recent-years average (−2%) sits below the early years (7%), but the latest year (7%) is back near the early level: a cyclical trough dragging the window down, not a one-way slide. The through-cycle median is 6% — read it across the cycle, not on the dip.

• Reinvestment, incremental ROIC −30%
  What this means

  Reinvested capital came back at a negative incremental return over this window — the invested base grew while operating profit did not. The filings show where it went.

• Worst year 2024 · −20.0% op. margin
  What this means

  Operations went underwater in 2024, understand why before trusting the good years.

• Share count +0.0%/yr
  What this means

  Roughly flat share count, little dilution, little buyback.

• Dividend record paid
  What this means

  Paid a dividend in 10 of the years on record.