4385 · Mercari

Will it survive?

• Can it pay its interest? 41.7×
  Comfortable
  Operating income ¥27.8B ÷ interest expense ¥668M
  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? +¥21.8B
  Net cash
  Cash ¥147.0B − debt ¥125.2B
  What this means

  Cash and short-term investments exceed every dollar of debt by ¥21.8B, 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? 382d
  Long (60+ days)
  DSO 483 + DIO 0 − DPO 101 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. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital 28%
  Very high (≥25%)
  NOPAT ¥22.0B ÷ invested capital ¥77.4B (debt + equity − cash)
  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. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin -11%
  Consumes cash through the cycle
  9-yr median margin, range -23%–28%; latest (¥12.2B) = operating cash (¥11.9B) − maintenance capex ¥300M
  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 -6% of revenue this year, a -11% median across 9 years.

• Are earnings backed by cash? -0.46×
  Thinly cash-backed
  Cash from ops (¥11.9B) ÷ net income ¥26.1B
  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? —
  No surplus to allocate
  What this means

  The business didn't generate positive Owner Earnings this year, so any distributions came from the balance sheet or borrowing, not from operations.

• Investing or harvesting? 0.16×
  Harvesting
  Capex ¥300M ÷ depreciation ¥1.8B
  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 4 of 10
  What this means

  Lost money in 6 year(s), look at what happened there before trusting the average.

• Operating margin −16% → 11% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about −16% early to 11% lately, median −3% — 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.

• Worst year 2020 · −25.3% op. margin
  What this means

  Operations went underwater in 2020, understand why before trusting the good years.