WDFC — WD-40 Co.

Will it survive?

• Can it pay its interest? 18.5×
  Comfortable
  Operating income $104M ÷ interest expense $6M

  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? 0.8×
  Conservative
  Total debt $86M ÷ operating income $104M

  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? 126d
  Capital-hungry
  DSO 71 + DIO 105 − DPO 50 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 31%
  Exceptional
  NOPAT $93M ÷ invested capital $296M (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 13%
  Solid
  Owner Earnings $83M = operating cash $88M − capex $5M

  What an owner could take out without starving the business. That's 13% of revenue. Treating stock comp as the real expense it is (less $7M of SBC) leaves $76M. 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? 0.97×
  Mostly cash-backed
  Cash from ops $88M ÷ net income $91M

  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? 75%
  Returns about half
  Dividends + buybacks $63M ÷ Owner Earnings $83M

  Of $83M Owner Earnings, $63M (75%) went back to shareholders — $50M dividends, $12M buybacks. Net of $7M stock comp, the real buyback was about $5M. 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? 0.55×
  Harvesting
  Capex $5M ÷ depreciation $8M

  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 — 2022–2025

A moat is high return that doesn’t fade. Here are the quality metrics across a full cycle — judge the consistency, not the latest dot.

• Return on invested capital ≥15% in 4 of 4 years
  31%
• Operating margin
  17%
• Owner Earnings margin
  13%