5301 · Tokai Carbon

Will it survive?

• Can it pay its interest? 10.8×
  Comfortable
  Operating income ¥25.9B ÷ interest expense ¥2.4B
  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? ¥143.0B · 5.5× operating profit
  Heavy net debt
  Cash ¥64.3B − debt ¥207.3B
  What this means

  Netting ¥64.3B of cash and short-term investments against ¥207.3B of debt leaves ¥143.0B owed, about 5.5× a year's operating profit (8.0× 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? 88d
  Long (60+ days)
  DSO 75 + DIO 43 − DPO 31 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 6%
  Below average through the cycle
  10-yr median, range 1%–27%; 6% latest = NOPAT ¥20.4B ÷ invested capital ¥326.1B
  Industry peers: median 7%
  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 9%
  Solid through the cycle
  10-yr median margin, range 4%–17%; latest ¥28.2B = operating cash ¥55.9B − maintenance capex ¥27.7B
  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 ¥13.4B more into growth, so free cash flow this year was ¥14.8B — the gap is investment, not weakness.

• Are earnings backed by cash? 2.78×
  Cash-backed
  Cash from ops ¥55.9B ÷ net income ¥20.1B
  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? 23%
  Reinvests most of it
  Dividends + buybacks ¥6.4B ÷ Owner Earnings ¥28.2B
  What this means

  Of ¥28.2B Owner Earnings, ¥6.4B (23%) went back to shareholders, ¥6.4B dividends, ¥0 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? 1.48×
  Expanding
  Capex ¥41.1B ÷ depreciation ¥27.7B
  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 8 of 10
  What this means

  Lost money in 2 year(s), look at what happened there before trusting the average.

• 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 14% → 8% (3-yr avg ends)
  What this means

  Through the cycle the operating margin slipped — about 14% early to 8% lately, median 10% — competition or costs are biting in.

• Reinvestment, incremental ROIC −0%
  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 +14%/yr
  What this means

  Owner earnings grew about 14% a year over the record.

• Worst year 2016 · 1.3% op. margin
  What this means

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

• Share count +0.0%/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.