4021 · Nissan Chemical

Will it survive?

• Can it pay its interest? 160.5×
  Comfortable
  Operating income ¥63.6B ÷ interest expense ¥396M
  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? ¥2.7B · 0.0× operating profit
  Modest net debt
  Cash ¥35.7B − debt ¥38.4B
  What this means

  Netting ¥35.7B of cash and short-term investments against ¥38.4B of debt leaves ¥2.7B owed, about 0.0× a year's operating profit (0.6× 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? 211d
  Long (60+ days)
  DSO 127 + DIO 140 − DPO 55 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 18%
  High through the cycle
  10-yr median, range 15%–21%; 21% latest = NOPAT ¥50.2B ÷ invested capital ¥241.5B
  Industry peers: median 8%
  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 21% 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 13%
  Solid through the cycle
  10-yr median margin, range 9%–17%; latest ¥46.1B = operating cash ¥64.2B − maintenance capex ¥18.0B
  Industry peers: median 7%
  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 17% of revenue this year, a 13% median across 10 years.

• Are earnings backed by cash? 1.29×
  Cash-backed
  Cash from ops ¥64.2B ÷ net income ¥49.7B
  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? 74%
  Returns about half
  Dividends + buybacks ¥34.1B ÷ Owner Earnings ¥46.1B
  What this means

  Of ¥46.1B Owner Earnings, ¥34.1B (74%) went back to shareholders, ¥23.6B dividends, ¥10.5B 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? 1.17×
  Maintaining
  Capex ¥18.0B ÷ depreciation ¥15.4B
  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 10 of 10
  What this means

  Never lost money over the record, the earnings stability Graham insisted on.

• Return on capital ≥ 15% 10 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 18% → 22% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 18% early to 22% lately, median 20% — pricing power intact or improving.

• Reinvestment, incremental ROIC 23%
  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 +7%/yr
  What this means

  Owner earnings grew about 7% a year over the record.

• Worst year 2017 · 17.4% op. margin
  What this means

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

• Share count −1.5%/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.