6305 · Hitachi Construction Machinery

Will it survive?

• Can it pay its interest? 8.2×
  Comfortable
  Operating income ¥130.1B ÷ interest expense ¥15.9B
  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? ¥427.1B · 3.3× operating profit
  Meaningful net debt
  Cash ¥141.5B − debt ¥568.5B
  What this means

  Netting ¥141.5B of cash and short-term investments against ¥568.5B of debt leaves ¥427.1B owed, about 3.3× a year's operating profit (4.4× 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? 2d
  Tight
  DSO 57 + DIO 31 − DPO 86 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 9%
  Solid through the cycle
  10-yr median, range -4%–13%; 8% latest = NOPAT ¥102.8B ÷ invested capital ¥1.33T
  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 9%
  Solid, recently turned positive
  latest ¥123.3B = operating cash ¥164.2B − maintenance capex ¥41.0B; positive each of the last 3 years, after an earlier loss stretch (9-yr median 2%)
  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 9% of revenue this year, a 2% median across 9 years.

• Are earnings backed by cash? 2.24×
  Cash-backed
  Cash from ops ¥164.2B ÷ net income ¥73.2B
  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? 32%
  Reinvests most of it
  Dividends + buybacks ¥39.3B ÷ Owner Earnings ¥123.3B
  What this means

  Of ¥123.3B Owner Earnings, ¥39.3B (32%) went back to shareholders, ¥39.3B dividends, ¥6M 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? —
  Not enough data
  What this means

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

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 6% → 11% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 6% early to 11% lately, median 10% — pricing power intact or improving.

• Reinvestment, incremental ROIC 11%
  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 +40%/yr
  What this means

  Owner earnings grew about 40% a year over the record.

• Worst year 2017 · −3.4% op. margin
  What this means

  Operations went underwater in 2017, understand why before trusting the good years.

• 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.