HD — Home Depot Inc.

Will it survive?

• Can it pay its interest? 8.7×
  Comfortable
  Operating income $20.9B ÷ interest expense $2.4B

  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? 2.4×
  Moderate
  Total debt $50.4B ÷ operating income $20.9B

  Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.

• How long is cash tied up? 60d
  Capital-hungry
  DSO 12 + DIO 86 − DPO 38 days

  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 26%
  Exceptional
  NOPAT $15.9B ÷ invested capital $61.9B (debt + equity − cash)

  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; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high — pair this with Owner Earnings.

• Owner Earnings (free cash) margin 8%
  Solid
  Owner Earnings $12.6B = operating cash $16.3B − capex $3.7B

  What an owner could take out without starving the business. That's 8% of revenue. Treating stock comp as the real expense it is (less $522M of SBC) leaves $12.1B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).

• Are earnings backed by cash? 1.15×
  Cash-backed
  Cash from ops $16.3B ÷ net income $14.2B

  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? 72%
  Returns about half
  Dividends + buybacks $9.2B ÷ Owner Earnings $12.6B

  Of $12.6B Owner Earnings, $9.2B (72%) went back to shareholders — $9.2B dividends, $0 buybacks. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway — or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 1.05×
  Maintaining
  Capex $3.7B ÷ depreciation $3.5B

  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 — 2017–2026

A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says — judgments, not another chart of the numbers.

• Profitable years 10 of 10

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

• Return on capital ≥ 15% 7 of 7 yrs

  A moat shows up as a high return on invested capital that holds year after year — not one good vintage.

• Operating margin 14% → 13%

  Margins held steady across the cycle.

• Reinvestment — incremental ROIC 27%

  Every extra dollar the company reinvested earned a high return — it is still compounding, not coasting on an old moat.

• Owner earnings growth +5%/yr

  Free cash to owners grew about 5% a year over the record.

• Worst year 2026 · 12.7% op. margin

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

• Share count −2.4%/yr

  The share count is shrinking — buybacks are quietly growing your slice of the business.

• Dividend record rising

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