ISSC, Innovative Solutions and Support Inc.

Will it survive?

• Can it pay its interest? 11.6×
  Comfortable
  Operating income $20M ÷ interest expense $2M
  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? $21M · 1.1× operating profit
  Modest net debt
  Cash $3M − debt $24M
  What this means

  Netting $3M of cash and short-term investments against $24M of debt leaves $21M owed, about 1.1× a year's operating profit (1.2× 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? 241d
  Long (60+ days)
  DSO 56 + DIO 215 − DPO 30 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 11%
  Solid through the cycle
  9-yr median, range -21%–40%; 18% latest = NOPAT $16M ÷ invested capital $86M
  Industry peers: median 6%
  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 9 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 12%
  Solid through the cycle
  9-yr median margin, range -16%–35%; latest $10M = operating cash $13M − maintenance capex $4M
  Industry peers: median 2%
  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 11% of revenue this year, a 12% median across 9 years. It chose to put $3M more into growth, so free cash flow this year was $7M — the gap is investment, not weakness. Treating stock comp as the real expense it is (less $2M of SBC) leaves $7M.

• Are earnings backed by cash? 0.85×
  Mostly cash-backed
  Cash from ops $13M ÷ net income $16M
  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? —
  Not enough data
  What this means

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

• Investing or harvesting? 1.74×
  Expanding
  Capex $7M ÷ depreciation & amortization as filed $4M
  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? 2.8%
  The count is rising
  Stock compensation $2M (fiscal 2025), 2.8% of revenue · no repurchases · diluted shares +3.3% 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 · 3 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 Miss
  Revenue ≥ $2B · $84M
  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× · 3.04×
  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 · $24M vs $34M 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 Near
  A profit every year (9-yr record) · 1 loss year
  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 · 2 of 9 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 Pass
  Earnings +33% over the record · +936%
  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 $0.53/share (latest year $0.87), the averaged base the calculator's gate runs on, and book value is $3.61/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, 2017–2025

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

• Profitable years 8 of 9
  What this means

  Lost money in 1 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 1 of 3 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 −6% → 22% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about −6% early to 22% lately, median 17% — pricing power intact or improving.

• 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 +19%/yr
  What this means

  Owner earnings grew about 19% a year over the record.

• Worst year 2018 · −26.8% op. margin
  What this means

  Operations went underwater in 2018, understand why before trusting the good years.

• Share count +0.7%/yr
  What this means

  Roughly flat share count, little dilution, little buyback.

• Dividend record paid
  What this means

  Paid a dividend in 2 of the years on record.