4043 · Tokuyama

Will it survive?

• Can it pay its interest? 26.0×
  Comfortable
  Operating income ¥37.0B ÷ interest expense ¥1.4B
  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? ¥115.6B · 3.1× operating profit
  Meaningful net debt
  Cash ¥46.5B − debt ¥162.0B
  What this means

  Netting ¥46.5B of cash and short-term investments against ¥162.0B of debt leaves ¥115.6B owed, about 3.1× a year's operating profit (4.4× 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? 53d
  Tight
  DSO 79 + DIO 43 − DPO 69 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 8%
  Solid through the cycle
  10-yr median, range 4%–16%; 8% latest = NOPAT ¥29.2B ÷ invested capital ¥376.1B
  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 8% 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 9%
  Solid through the cycle
  10-yr median margin, range -9%–15%; latest ¥30.0B = operating cash ¥51.0B − maintenance capex ¥20.9B
  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 9% of revenue this year, a 9% median across 10 years. It chose to put ¥8.2B more into growth, so free cash flow this year was ¥21.9B — the gap is investment, not weakness.

• Are earnings backed by cash? 2.30×
  Cash-backed
  Cash from ops ¥51.0B ÷ net income ¥22.2B
  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? 26%
  Reinvests most of it
  Dividends + buybacks ¥7.9B ÷ Owner Earnings ¥30.0B
  What this means

  Of ¥30.0B Owner Earnings, ¥7.9B (26%) went back to shareholders, ¥7.9B dividends, ¥7M 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? 1.39×
  Expanding
  Capex ¥29.1B ÷ depreciation ¥20.9B
  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, 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% 1 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 12% → 9% (3-yr avg ends)
  What this means

  Through the cycle the operating margin slipped — about 12% early to 9% lately, median 10% — competition or costs are biting in.

• Reinvestment, incremental ROIC −6%
  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.

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

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

• Worst year 2023 · 4.1% op. margin
  What this means

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

• Share count +0.3%/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.