5713 · Sumitomo Metal Mining

Will it survive?

• Can it pay its interest? 7.3×
  Comfortable
  Operating income ¥133.6B ÷ interest expense ¥18.3B
  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? ¥547.0B · 4.1× operating profit
  Heavy net debt
  Cash ¥116.8B − debt ¥663.8B
  What this means

  Netting ¥116.8B of cash and short-term investments against ¥663.8B of debt leaves ¥547.0B owed, about 4.1× a year's operating profit (5.0× 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? 24d
  Tight
  DSO 53 + DIO 48 − DPO 77 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 3%
  Below average through the cycle
  10-yr median, range 2%–6%; 4% latest = NOPAT ¥105.6B ÷ invested capital ¥2.62T
  Industry peers: median 9%
  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 4% 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 5%
  Solid through the cycle
  10-yr median margin, range -1%–11%; latest ¥42.0B = operating cash ¥101.8B − maintenance capex ¥59.8B
  Industry peers: median 6%
  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 2% of revenue this year, a 5% median across 10 years. It chose to put ¥22.9B more into growth, so free cash flow this year was ¥19.1B — the gap is investment, not weakness.

• Are earnings backed by cash? 0.58×
  Thinly cash-backed
  Cash from ops ¥101.8B ÷ net income ¥176.3B
  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? 114%
  Returned more than it generated
  Dividends + buybacks ¥47.7B ÷ Owner Earnings ¥42.0B
  What this means

  The company returned more than it generated: against ¥42.0B of Owner Earnings, ¥47.7B (114%) went back to shareholders, ¥32.7B dividends, ¥15.0B 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? 1.38×
  Expanding
  Capex ¥82.8B ÷ depreciation ¥59.8B
  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, 2017–2026

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 9 of 10
  What this means

  Lost money in 1 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 6% → 6% (3-yr avg ends)
  What this means

  Through the cycle the operating margin held roughly steady — about 6% early, 6% lately, median 6%.

• Reinvestment, incremental ROIC 3%
  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 +17%/yr
  What this means

  Owner earnings grew about 17% a year over the record.

• Worst year 2019 · 4.1% 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.