5401 · Nippon Steel

Will it survive?

• Can it pay its interest? 2.7×
  Adequate
  Operating income ¥242.9B ÷ interest expense ¥89.6B
  What this means

  Comfortable in a normal year, but below the margin of safety Graham looked for. Worth checking how stable the coverage has been across a full cycle.

• How heavy is the debt, net of cash? ¥3.71T · 15.3× operating profit
  Heavy net debt
  Cash ¥461.3B − debt ¥4.17T
  What this means

  Netting ¥461.3B of cash and short-term investments against ¥4.17T of debt leaves ¥3.71T owed, about 15.3× a year's operating profit (17.2× 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? —
  Not enough data
  What this means

  The filing data didn't include the inputs for this check.

Is it a good business?

• Return on invested capital 4%
  Below average through the cycle
  10-yr median, range -7%–13%; 2% latest = NOPAT ¥191.9B ÷ invested capital ¥9.24T
  Industry peers: median 6%
  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 2% 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 2%
  Thin through the cycle
  10-yr median margin, range 0%–7%; latest ¥143.0B = operating cash ¥716.9B − maintenance capex ¥573.9B
  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 1% of revenue this year, a 2% median across 10 years. It chose to put ¥289.3B more into growth, so free cash flow this year was (¥146.2B) — the gap is investment, not weakness.

• Are earnings backed by cash? 41.78×
  Cash-backed
  Cash from ops ¥716.9B ÷ net income ¥17.2B
  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? 102%
  Returned more than it generated
  Dividends + buybacks ¥146.5B ÷ Owner Earnings ¥143.0B
  What this means

  The company returned more than it generated: against ¥143.0B of Owner Earnings, ¥146.5B (102%) went back to shareholders, ¥146.5B dividends, ¥29M 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? 1.50×
  Expanding
  Capex ¥863.2B ÷ depreciation ¥573.9B
  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 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% 0 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 4% → 6% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 4% early to 6% lately, median 4% — pricing power intact or improving.

• Reinvestment, incremental ROIC 9%
  What this means

  Reinvested capital came back at only a modest incremental return — near the cost of capital, where extra growth adds little per dollar. The record shows whether it is a soft stretch or a thinning moat.

• Owner earnings growth +13%/yr
  What this means

  Owner earnings grew about 13% a year over the record.

• Worst year 2020 · −6.9% op. margin
  What this means

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

• Dividend record rising
  What this means

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