4568 · Daiichi Sankyo

Will it survive?

• Can it pay its interest? 28.7×
  Comfortable
  Operating income ¥229.1B ÷ interest expense ¥8.0B
  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? +¥179.2B
  Net cash
  Cash ¥449.8B + ST investments ¥29.9B − debt ¥300.5B
  What this means

  Cash and short-term investments exceed every dollar of debt by ¥179.2B, 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? -167d
  Negative, funded by others
  DSO 127 + DIO 31 − DPO 326 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.

Is it a good business?

• Return on invested capital 7%
  Below average through the cycle
  10-yr median, range 2%–24%; 12% latest = NOPAT ¥181.0B ÷ invested capital ¥1.51T
  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 12% 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 7%
  Solid through the cycle
  9-yr median margin, range -1%–34%; latest ¥195M = operating cash ¥77.7B − maintenance capex ¥77.5B
  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 0% of revenue this year, a 7% median across 9 years. It chose to put ¥50.9B more into growth, so free cash flow this year was (¥50.7B) — the gap is investment, not weakness.

• Are earnings backed by cash? 0.30×
  Thinly cash-backed
  Cash from ops ¥77.7B ÷ net income ¥259.9B
  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? 143019%
  Returned more than it generated
  Dividends + buybacks ¥278.9B ÷ Owner Earnings ¥195M
  What this means

  The company returned more than it generated: against ¥195M of Owner Earnings, ¥278.9B (143019%) went back to shareholders, ¥128.4B dividends, ¥150.5B buybacks — the excess came from the balance sheet or borrowing, not the year's operations. Sustained, that pattern draws down cash or adds debt; the net-debt line above shows where it stands.

• Investing or harvesting? 1.66×
  Expanding
  Capex ¥128.4B ÷ depreciation ¥77.5B
  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 6% → 14% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 6% early to 14% lately, median 9% — 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 2017 · 1.9% op. margin
  What this means

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

• Dividend record rising
  What this means

  Paid and raised the dividend across the record, the continuity Graham prized.