CALY, Callaway Golf Company

Will it survive?

• Can it pay its interest? 2.1×
  Adequate
  Operating income $128M ÷ interest expense $61M
  What this means

  Comfortable in a normal year, but below the margin of safety Graham looked for. Worth checking how stable the coverage has been across a full cycle.

• How heavy is the debt, net of cash? $513M · 4.0× operating profit
  Heavy net debt
  Cash $903M − debt $1.4B
  What this means

  Netting $903M of cash and short-term investments against $1.4B of debt leaves $513M owed, about 4.0× a year's operating profit (11.1× 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? 180d
  Long (60+ days)
  DSO 22 + DIO 191 − DPO 34 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
  8-yr median, range -9%–15%; the latest year is left out — large non-operating charges put its operating line well above pretax profit
  Industry peers: median 12%
  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 8 years, 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 8%
  Solid through the cycle
  10-yr median margin, range -6%–16%; latest $302M = operating cash $334M − maintenance capex $32M
  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 15% of revenue this year, a 8% median across 10 years. Treating stock comp as the real expense it is (less $24M of SBC) leaves $278M.

• Are earnings backed by cash? $334M
  Loss, but cash-generative
  Net income ($409M) · cash from operations $334M
  What this means

  The company reported a net loss, so a conversion ratio isn't meaningful. What matters then is whether operations still threw off cash, here, they did.

How is the cash used?

• Where do the earnings go? 1%
  Reinvests most of it
  Dividends + buybacks $4M ÷ Owner Earnings $302M — this fiscal year
  What this means

  Of $302M Owner Earnings, $4M (1%) went back to shareholders, $0 dividends, $4M buybacks. But the buybacks barely exceed stock issued to employees ($24M SBC), net of dilution, little was truly returned. 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. This year's proportion is 1%; across the record (2016–2025) it is 21%, the capital-allocation section below.

• Investing or harvesting? 0.69×
  Harvesting
  Capex $32M ÷ depreciation & amortization as filed $46M
  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.

The promise and the pay packet

• Is the buyback buying ownership, or mopping up? 1.2%
  The count is genuinely shrinking
  Stock compensation $24M (fiscal 2025), 1.2% of revenue · repurchases $4M · diluted shares -7.7% since 2022
  What this means

  Stock handed to employees is a real cost paid in the owner's own currency: it is charged against profit, but the shares it creates are permanent. Many companies repurchase stock at the same time, which looks like a return of capital and often is not — if the count barely moves, the cash merely cancelled the pay packet and bought the owner nothing. The three states worth telling apart are a count genuinely shrinking, a count standing still despite large repurchases, and a count rising because the issuance was never offset at all.

Graham’s defensive tests · 2 of 6 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Pass
  Revenue ≥ $2B · $2.1B
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Miss
  Current ratio ≥ 2× · 1.36×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Pass
  Debt ≤ working capital · $1.4B vs $1.6B WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Earnings stability Miss
  A profit every year (10-yr record) · 3 loss years
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record Miss
  Uninterrupted dividends · 5 of 10 yrs
  What this means

  An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.

• Earnings growth Miss
  Earnings +33% over the record · −625%
  What this means

  At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $-3.29/share (latest year $-2.29), the averaged base the calculator's gate runs on, and book value is $11.59/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2016–2025

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

• Profitable years 7 of 10
  What this means

  Lost money in 3 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 1 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 8% → 8% (3-yr avg ends)
  What this means

  Through the cycle the operating margin held roughly steady — about 8% early, 8% lately, median 7%.

• Reinvestment, incremental ROIC 2%
  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 +16%/yr
  What this means

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

• Worst year 2020 · −6.6% op. margin
  What this means

  Operations went underwater in 2020, understand why before trusting the good years.

• Dividend record paid
  What this means

  Paid a dividend in 5 of the years on record.

• How management talks about it Owner’s terms
  What this means

  The record and the register agree: capital is compounding and the filing reasons in an owner’s terms — per-share value, return on capital, the long term — not a promoter’s.