TAL, TAL Education Group

Will it survive?

• Can it pay its interest? 35.1×
  Comfortable
  Operating income $276M ÷ interest expense $8M
  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? +$2.7B
  Net cash
  Cash $1.5B + ST investments $1.7B − debt $532M
  What this means

  Cash and short-term investments exceed every dollar of debt by $2.7B, 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? 6d
  Tight
  DSO 9 + DIO 39 − DPO 41 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 -0%
  Below average through the cycle
  9-yr median, range -20%–26%; 8% latest = NOPAT $214M ÷ invested capital $2.8B
  Industry peers: median 8%
  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 8% 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 -25%–37%; latest $533M = operating cash $601M − maintenance capex $69M
  Industry peers: median 12%
  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 18% of revenue this year, a 18% median across 10 years.

• Are earnings backed by cash? 1.13×
  Cash-backed
  Cash from ops $601M ÷ net income $530M
  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? 121%
  Returned more than it generated
  Dividends + buybacks $644M ÷ Owner Earnings $533M — this fiscal year
  What this means

  The company returned more than it generated: against $533M of Owner Earnings, $644M (121%) went back to shareholders, $0 dividends, $644M buybacks — the excess came from the balance sheet or borrowing, not the year's operations. Sustained, that pattern draws down cash or adds debt; the net-debt line above shows where it stands. This year's proportion is 121%; across the record (2017–2026) it is 45%, the capital-allocation section below.

• Investing or harvesting? 1.36×
  Expanding
  Capex $93M ÷ depreciation $69M
  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.

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 Pass
  Revenue ≥ $2B · $3.0B
  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× · 2.17×
  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 · $532M vs $2.1B 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 Miss
  A profit every year (10-yr record) · 5 loss years
  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 · 1 of 10 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 Miss
  Earnings +33% over the record · −9%
  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 $1.05/share (latest year $2.75), the averaged base the calculator's gate runs on, and book value is $19.56/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 5 of 10
  What this means

  Lost money in 5 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 2 of 5 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 13% → 1% (3-yr avg ends)

  In the filing’s words The words explain the slip: the filing names price competition rather than pricing actions of its own — a business that looks to take its price, not set it.

  What this means

  Through the cycle the operating margin slipped — about 13% early to 1% lately, median −0% — competition or costs are biting in.

• Reinvestment, incremental ROIC −24%
  What this means

  Reinvested capital came back at a negative incremental return over this window — the invested base grew while operating profit did not. The filings show where it went.

• Owner earnings growth −1%/yr
  What this means

  Owner earnings shrank about 1% a year over the record.

• Worst year 2022 · −14.0% op. margin
  What this means

  Operations went underwater in 2022, understand why before trusting the good years.

• Share count +0.3%/yr
  What this means

  Roughly flat share count, little dilution, little buyback.

• Dividend record paid
  What this means

  Paid a dividend in 1 of the years on record.