FN, Fabrinet

Will it survive?

• Can it pay its interest? 5510.6×
  Comfortable
  Operating income $463M ÷ interest expense $84K
  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? +$846M
  Net cash
  Cash $347M + ST investments $528M − debt $29M
  What this means

  Cash and short-term investments exceed every dollar of debt by $846M, 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? 81d
  Long (60+ days)
  DSO 80 + DIO 91 − DPO 90 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 18%
  High through the cycle
  10-yr median, range 14%–20%; 18% latest = NOPAT $394M ÷ invested capital $2.1B
  Industry peers: median 9%
  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 18% 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 7%
  Solid through the cycle
  10-yr median margin, range 3%–13%; latest $188M = operating cash $257M − maintenance capex $68M
  Industry peers: median 13%
  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 4% of revenue this year, a 7% median across 10 years. It chose to put $184M more into growth, so free cash flow this year was $4M — the gap is investment, not weakness. Treating stock comp as the real expense it is (less $35M of SBC) leaves $154M.

• Are earnings backed by cash? 0.54×
  Thinly cash-backed
  Cash from ops $257M ÷ net income $473M
  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? 3%
  Reinvests most of it
  Dividends + buybacks $5M ÷ Owner Earnings $188M — this fiscal year
  What this means

  Of $188M Owner Earnings, $5M (3%) went back to shareholders, $0 dividends, $5M buybacks. But the buybacks barely exceed stock issued to employees ($35M 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 3%; across the record (2017–2026) it is 23%, the capital-allocation section below.

• Investing or harvesting? 3.69×
  Expanding
  Capex $253M ÷ depreciation & amortization as filed $68M
  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? 0.7%
  The count is edging down
  Stock compensation $35M (fiscal 2026), 0.7% of revenue · repurchases $5M · diluted shares -1.6% since 2023
  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 · 5 of 5 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 · $4.6B
  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 Pass
  Current ratio ≥ 2× · 2.25×
  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 · $29M vs $1.8B 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 Pass
  A profit every year (10-yr record) · no losses
  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 Pass
  Earnings +33% over the record · +265%
  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 $10.25/share (latest year $13.20), the averaged base the calculator's gate runs on, and book value is $68.49/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, 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% 7 of 8 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 7% → 10% (3-yr avg ends)

  In the filing’s words Input costs rose and the filing says it recovered them in price — consistent with the margin holding here.

  What this means

  Through the cycle the operating margin widened — about 7% early to 10% lately, median 8% — pricing power intact or improving.

• Reinvestment, incremental ROIC 38%
  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 +13%/yr
  What this means

  Owner earnings grew about 13% a year over the record.

• Worst year 2018 · 6.8% op. margin
  What this means

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

• Share count −0.5%/yr
  What this means

  Roughly flat share count, little dilution, little buyback.