KGS, Kodiak Gas Services

Will it survive?

• Can it pay its interest? —
  Interest expense not tagged in the data
  What this means

  No usable interest-expense line was tagged in the filing data, but the balance sheet carries real net debt — so the interest burden here is unknown, not absent. Read the debt on the net-debt check below.

• How heavy is the debt, net of cash? $2.6B · 7.5× operating profit
  Heavy net debt
  Cash $3M − debt $2.6B
  What this means

  Netting $3M of cash and short-term investments against $2.6B of debt leaves $2.6B owed, about 7.5× a year's operating profit. 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 6%
  Below average through the cycle
  5-yr median, range 4%–20%; 6% latest = NOPAT $244M ÷ invested capital $3.8B
  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 5 years (it ran 6% 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 6%
  Solid through the cycle
  5-yr median margin, range 5%–22%; latest $284M = operating cash $600M − maintenance capex $315M
  Industry peers: median 18%
  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 22% of revenue this year, a 6% median across 5 years. Treating stock comp as the real expense it is (less $25M of SBC) leaves $260M.

• Are earnings backed by cash? 7.45×
  Cash-backed
  Cash from ops $600M ÷ net income $81M

  In the filing’s words The filing leans on adjusted, non-GAAP earnings, but the GAAP profit is itself cash-backed — the adjustments are not papering over a cash shortfall here.

  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? 93%
  Returns most of it
  Dividends + buybacks $264M ÷ Owner Earnings $284M — this fiscal year
  What this means

  Of $284M Owner Earnings, $264M (93%) went back to shareholders, $160M dividends, $104M buybacks. Net of $25M stock comp, the real buyback was about $79M. 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 93%; across the record (2021–2025) it is 88%, the capital-allocation section below.

• Investing or harvesting? 1.14×
  Maintaining
  Capex $315M ÷ depreciation & amortization as filed $276M
  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? 1.9%
  The count is rising
  Stock compensation $25M (fiscal 2025), 1.9% of revenue · repurchases $104M · diluted shares +50.0% 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 · 1 of 4 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 · $1.3B
  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× (waived for utilities) · exempt
  What this means

  Graham exempted public utilities from this test: their working capital “takes care of itself” through the continuous bond-and-share financing of growth, so a thin current ratio is the industry's structure, not a warning. His substitute test — debt no more than twice book equity — is the next line.

• Conservative debt Near
  Debt ≤ 2× equity (Graham's utility test) · $2.6B vs $1.2B equity
  What this means

  Graham's own substitution for public utilities: debt not exceeding twice the stock equity at book value, in place of the working-capital tests an industrial faces. A utility finances its plant with bonds by design; the question is whether the borrowing stays inside the equity behind it.

• Earnings stability Pass
  A profit every year (5-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 Miss
  Uninterrupted dividends · 3 of 5 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.

• 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 $0.50/share (latest year $0.80), the averaged base the calculator's gate runs on, and book value is $11.94/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, 2021–2025

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

• Profitable years 5 of 5
  What this means

  Never lost money over the record, the earnings stability Graham insisted on.

• Return on capital ≥ 15% 0 of 4 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 31% → 24% (2-yr avg ends)

  In the filing’s words The filing attributes gains to higher prices, but the margin in the record has not followed — the claim outruns the result here.

  What this means

  Through the cycle the operating margin slipped — about 31% early to 24% lately, median 29% — 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 +27%/yr
  What this means

  Owner earnings grew about 27% a year over the record.

• Worst year 2024 · 21.5% op. margin
  What this means

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

• Share count +10.7%/yr
  What this means

  The share count is rising, dilution works against you on a per-share basis.

• Dividend record rising
  What this means

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