IPG, Interpublic

Will it survive?

• Can it pay its interest? 5.2×
  Comfortable
  Operating income $1.2B ÷ interest expense $230M
  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? $734M · 0.6× operating profit
  Modest net debt
  Cash $2.2B − debt $2.9B
  What this means

  Netting $2.2B of cash and short-term investments against $2.9B of debt leaves $734M owed, about 0.6× a year's operating profit (2.4× 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? -148d
  Negative, funded by others
  DSO 193 + DIO 0 − DPO 341 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. A negative cycle is a quiet moat: suppliers and customers fund the operation (Buffett's “float”), the company grows on other people's money. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital 24%
  High through the cycle
  10-yr median, range 14%–36%; 18% latest = NOPAT $811M ÷ invested capital $4.5B
  Industry peers: median 11%
  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%–19%; latest $913M = operating cash $1.1B − maintenance capex $142M
  Industry peers: median 9%
  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 9% of revenue this year, a 7% median across 10 years. Treating stock comp as the real expense it is (less $65M of SBC) leaves $849M.

• Are earnings backed by cash? 1.53×
  Cash-backed
  Cash from ops $1.1B ÷ net income $690M
  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? 80%
  Returns about half
  Dividends + buybacks $727M ÷ Owner Earnings $913M — this fiscal year
  What this means

  Of $913M Owner Earnings, $727M (80%) went back to shareholders, $497M dividends, $230M buybacks. Net of $65M stock comp, the real buyback was about $165M. 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 80%; across the record (2015–2024) it is 64%, the capital-allocation section below.

• Investing or harvesting? 0.55×
  Harvesting
  Capex $142M ÷ depreciation & amortization as filed $259M
  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? 0.6%
  The count is genuinely shrinking
  Stock compensation $65M (fiscal 2024), 0.6% of revenue · no repurchases · diluted shares -5.2% since 2021
  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 · 4 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 · $10.7B
  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× · 1.09×
  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 Miss
  Debt ≤ working capital · $2.9B vs $848M 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 Pass
  Uninterrupted dividends · paid every year (10)
  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 Pass
  Earnings +33% over the record · +69%
  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 $2.50/share (latest year $1.90), the averaged base the calculator's gate runs on, and book value is $10.45/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, 2015–2024

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% 9 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 11% → 13% (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 held roughly steady — about 11% early, 13% lately, median 11%.

• Reinvestment, incremental ROIC 19%
  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 +4%/yr
  What this means

  Owner earnings grew about 4% a year over the record.

• Worst year 2020 · 6.5% 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.

• Dividend record rising
  What this means

  Paid and raised the dividend across the record, the continuity Graham prized.

• 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.