6701 · NEC

Will it survive?

• Can it pay its interest? 37.6×
  Comfortable
  Operating income ¥359.9B ÷ interest expense ¥9.6B
  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? +¥169.8B
  Net cash
  Cash ¥659.0B − debt ¥489.2B
  What this means

  Cash and short-term investments exceed every dollar of debt by ¥169.8B, on net the company owes nothing, and can act from strength when others can't. 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? 38d
  Tight
  DSO 101 + DIO 9 − DPO 72 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 7%
  Below average through the cycle
  10-yr median, range -2%–14%; 14% latest = NOPAT ¥284.3B ÷ invested capital ¥2.03T
  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 14% 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 6%
  Solid through the cycle
  9-yr median margin, range 1%–10%; latest ¥368.1B = operating cash ¥438.5B − maintenance capex ¥70.3B
  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 10% of revenue this year, a 6% median across 9 years.

• Are earnings backed by cash? 1.62×
  Cash-backed
  Cash from ops ¥438.5B ÷ net income ¥270.2B
  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? 18%
  Reinvests most of it
  Dividends + buybacks ¥67.4B ÷ Owner Earnings ¥368.1B
  What this means

  Of ¥368.1B Owner Earnings, ¥67.4B (18%) went back to shareholders, ¥40.0B dividends, ¥27.3B 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? 0.46×
  Harvesting
  Capex ¥70.3B ÷ depreciation ¥154.5B
  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 1% → 8% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 1% early to 8% lately, median 4% — pricing power intact or improving.

• Reinvestment, incremental ROIC 21%
  What this means

  Every extra dollar the business reinvested came back at a high incremental return — the lens GBM read for a moat that reinvests rather than merely harvests. The record and the 10-K are where you check whether the rate holds.

• Owner earnings growth +24%/yr
  What this means

  Owner earnings grew about 24% a year over the record.

• Worst year 2017 · −1.4% op. margin
  What this means

  Operations went underwater in 2017, 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.