5801 · Furukawa Electric

Will it survive?

• Can it pay its interest? 7.1×
  Comfortable
  Operating income ¥63.9B ÷ interest expense ¥9.0B
  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? ¥257.1B · 4.0× operating profit
  Heavy net debt
  Cash ¥70.5B + ST investments ¥1.8B − debt ¥329.4B
  What this means

  Netting ¥72.3B of cash and short-term investments against ¥329.4B of debt leaves ¥257.1B owed, about 4.0× a year's operating profit (5.2× 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? 52d
  Tight
  DSO 74 + DIO 25 − DPO 48 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 4%
  Below average through the cycle
  10-yr median, range 1%–8%; 8% latest = NOPAT ¥50.4B ÷ invested capital ¥615.0B
  Industry peers: median 16%
  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 8% 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 0%
  Thin through the cycle
  10-yr median margin, range -5%–2%; latest (¥18.0B) = operating cash ¥28.1B − maintenance capex ¥46.1B
  Industry peers: median 2%
  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 0% median across 10 years.

• Are earnings backed by cash? 0.39×
  Thinly cash-backed
  Cash from ops ¥28.1B ÷ net income ¥72.5B
  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? 1.07×
  Maintaining
  Capex ¥46.1B ÷ depreciation ¥43.2B
  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% 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% → 3% (3-yr avg ends)
  What this means

  The recent-years average (3%) sits below the early years (4%), but the latest year (5%) is back near the early level: a cyclical trough dragging the window down, not a one-way slide. The through-cycle median is 3% — read it across the cycle, not on the dip.

• 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.

• Owner earnings growth −16%/yr
  What this means

  Owner earnings shrank about 16% a year over the record.

• Worst year 2021 · 1.0% 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.