8035 · Tokyo Electron

Will it survive?

• Can it pay its interest? —
  No meaningful interest burden
  Little or no interest expense reported
  What this means

  Little or no interest expense reported, the business isn't leaning on lenders to operate.

• How heavy is the debt, net of cash? +¥560.4B
  Net cash
  Cash ¥505.4B + ST investments ¥55.0B − debt ¥7M
  What this means

  Cash and short-term investments exceed every dollar of debt by ¥560.4B, 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? 122d
  Long (60+ days)
  DSO 79 + DIO 78 − DPO 35 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 38%
  Very high (≥25%)
  NOPAT ¥493.7B ÷ invested capital ¥1.29T (debt + equity − cash)
  Industry peers: median 8%
  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. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 15%
  Solid through the cycle
  10-yr median margin, range 8%–21%; latest ¥458.8B = operating cash ¥539.7B − maintenance capex ¥81.0B
  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 19% of revenue this year, a 15% median across 10 years. It chose to put ¥128.0B more into growth, so free cash flow this year was ¥330.7B — the gap is investment, not weakness.

• Are earnings backed by cash? 0.94×
  Mostly cash-backed
  Cash from ops ¥539.7B ÷ net income ¥574.5B
  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? 92%
  Returns most of it
  Dividends + buybacks ¥421.6B ÷ Owner Earnings ¥458.8B
  What this means

  Of ¥458.8B Owner Earnings, ¥421.6B (92%) went back to shareholders, ¥271.6B dividends, ¥150.0B 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? 2.58×
  Expanding
  Capex ¥209.0B ÷ depreciation ¥81.0B
  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% 10 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 23% → 26% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 23% early to 26% lately, median 25% — pricing power intact or improving.

• Reinvestment, incremental ROIC 39%
  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 +15%/yr
  What this means

  Owner earnings grew about 15% a year over the record.

• Worst year 2017 · 19.5% 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.