ECPG, Encore Capital Group Inc

Will it survive?

• Can it pay its interest? 2.1×
  Adequate
  Operating income $627M ÷ interest expense $294M
  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? $3.9B · 6.2× operating profit
  Heavy net debt
  Cash $157M − debt $4.0B
  What this means

  Netting $157M of cash and short-term investments against $4.0B of debt leaves $3.9B owed, about 6.2× a year's operating profit (6.4× 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? —
  Not enough data
  What this means

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

Is it a good business?

• Return on invested capital 8%
  Below average through the cycle
  8-yr median, range 5%–13%; 10% latest = NOPAT $479M ÷ invested capital $4.9B
  Industry peers: median 10%
  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 (it ran 10% 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 18%
  High through the cycle
  10-yr median margin, range 7%–162%; latest $127M = operating cash $153M − maintenance capex $26M
  Industry peers: median 24%
  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 7% of revenue this year, a 18% median across 10 years. Treating stock comp as the real expense it is (less $18M of SBC) leaves $109M.

• Are earnings backed by cash? 0.60×
  Thinly cash-backed
  Cash from ops $153M ÷ net income $257M
  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? 71%
  Returns about half
  Dividends + buybacks $90M ÷ Owner Earnings $127M — this fiscal year
  What this means

  Of $127M Owner Earnings, $90M (71%) went back to shareholders, $0 dividends, $90M buybacks. Net of $18M stock comp, the real buyback was about $72M. 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 71%; across the record (2016–2025) it is 34%, the capital-allocation section below.

• Investing or harvesting? 0.91×
  Maintaining
  Capex $26M ÷ depreciation & amortization as filed $29M
  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? 1.0%
  The count is genuinely shrinking
  Stock compensation $18M (fiscal 2025), 1.0% of revenue · repurchases $90M · diluted shares -9.8% 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 · 0 of 3 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 Near
  Revenue ≥ $2B · $1.8B
  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 —
  Current ratio ≥ 2× · —
  What this means

  Current assets / liabilities not in the data yet.

• Earnings stability Miss
  A profit every year (10-yr record) · 2 loss years
  What this means

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

• Dividend record —
  Uninterrupted dividends · no dividend line tagged in the data
  What this means

  An unbroken dividend was Graham's mark of durability. This record carries no dividends-paid line in any year — common for partnerships, whose distributions file under tags the chain doesn't read — so the criterion is withheld rather than judged on silence.

• Earnings growth Miss
  Earnings +33% over the record · −132%
  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 $-1.40/share (latest year $12.11), the averaged base the calculator's gate runs on, and book value is $46.05/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 8 of 10
  What this means

  Lost money in 2 year(s), look at what happened there before trusting the average.

• 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 309% → 16% (3-yr avg ends)
  What this means

  Through the cycle the operating margin slipped — about 309% early to 16% lately, median 36% — competition or costs are biting in.

• 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 +3%/yr
  What this means

  Owner earnings grew about 3% a year over the record.

• Worst year 2023 · 1.4% op. margin
  What this means

  Stayed profitable even in its hardest year, the resilience that survives recessions.

• Share count −1.1%/yr
  What this means

  The share count is shrinking, buybacks are quietly growing your slice of the business.