3405 · Kuraray

Will it survive?

• Can it pay its interest? 21.0×
  Comfortable
  Operating income ¥58.9B ÷ interest expense ¥2.8B
  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? ¥172.4B · 2.9× operating profit
  Meaningful net debt
  Cash ¥108.3B + ST investments ¥4.2B − debt ¥284.9B
  What this means

  Netting ¥112.5B of cash and short-term investments against ¥284.9B of debt leaves ¥172.4B owed, about 2.9× a year's operating profit (4.8× 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? 158d
  Long (60+ days)
  DSO 81 + DIO 116 − DPO 38 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 8%
  Below average through the cycle
  10-yr median, range 5%–11%; 7% latest = NOPAT ¥46.5B ÷ invested capital ¥706.7B
  Industry peers: median 10%
  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 7% 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 1%
  Thin, recently turned positive
  latest ¥4.4B = operating cash ¥98.6B − maintenance capex ¥94.2B; positive each of the last 3 years, after an earlier loss stretch (10-yr median 5%)
  Industry peers: median 8%
  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 1% of revenue this year, a 5% median across 10 years.

• Are earnings backed by cash? 13.20×
  Cash-backed
  Cash from ops ¥98.6B ÷ net income ¥7.5B
  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? 1073%
  Returned more than it generated
  Dividends + buybacks ¥47.4B ÷ Owner Earnings ¥4.4B — this fiscal year
  What this means

  The company returned more than it generated: against ¥4.4B of Owner Earnings, ¥47.4B (1073%) went back to shareholders, ¥17.4B dividends, ¥30.0B 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 1073%; across the record (2016–2025) it is 80%, the capital-allocation section below.

• Investing or harvesting? 1.11×
  Maintaining
  Capex ¥94.2B ÷ depreciation ¥84.7B
  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.

Durability & moat, 2016–2025

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

• Profitable years 9 of 10
  What this means

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

• Return on capital ≥ 15% 0 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 13% → 9% (3-yr avg ends)
  What this means

  Through the cycle the operating margin slipped — about 13% early to 9% lately, median 10% — 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 −2%/yr
  What this means

  Owner earnings shrank about 2% a year over the record.

• Worst year 2025 · 7.3% op. margin
  What this means

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

• Share count −1.6%/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.