FFIV, F5 Inc.

Will it survive?

• Can it pay its interest? —
  No meaningful interest burden
  Little or no interest expense reported
  What this means

  Little or no interest expense reported, the business isn't leaning on lenders to operate.

• How heavy is the debt, net of cash? +$1.3B
  Net cash, debt-free
  Cash $1.3B − debt $0
  What this means

  Cash and short-term investments exceed every dollar of debt by $1.3B, 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? 45d
  Tight
  DSO 49 + DIO 49 − DPO 53 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 26%
  Very high (≥25%) through the cycle
  9-yr median, range 16%–74%; 29% latest = NOPAT $656M ÷ invested capital $2.2B
  Industry peers: median 9%
  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 29% 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 27%
  High through the cycle
  9-yr median margin, range 15%–34%; latest $906M = operating cash $950M − maintenance capex $43M
  Industry peers: median 11%
  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 29% of revenue this year, a 27% median across 9 years. Treating stock comp as the real expense it is (less $231M of SBC) leaves $675M.

• Are earnings backed by cash? 1.37×
  Cash-backed
  Cash from ops $950M ÷ net income $692M
  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? 55%
  Returns about half
  Dividends + buybacks $502M ÷ Owner Earnings $906M — this fiscal year
  What this means

  Of $906M Owner Earnings, $502M (55%) went back to shareholders, $0 dividends, $502M buybacks. Net of $231M stock comp, the real buyback was about $271M. 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 55%; across the record (2017–2025) it is 64%, the capital-allocation section below.

• Investing or harvesting? 0.47×
  Harvesting
  Capex $43M ÷ depreciation $92M
  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

• How much of next year is already sold? 39%
  A meaningful head start
  Contracted and not yet earned $2.0B, of which the filing expects 61% within twelve months = $1.2B against revenue of $3.1B
  What this means

  Remaining performance obligations are revenue the customer has committed to and the company has not yet earned — the nearest thing a software business has to an insurer's float. The headline total is a duration figure and can mislead badly on its own, because a contract signed for seven years counts the same as one signed for one. What matters is the part the filing itself expects to recognise within twelve months, shown here against a year of revenue. Where a company does not tag that band, both figures are withheld rather than shown half-told.

• What does winning a customer cost? 28%
  Modest selling cost
  Selling and marketing $861M ÷ revenue $3.1B
  What this means

  Sales and marketing as a share of revenue, kept apart from administrative overhead because it answers a different question: how much a business must spend to win the next customer. A company whose product pulls customers in spends little here and keeps the difference; one that must buy its growth is running to stand still, and the spending has to keep rising for revenue to keep rising. Read it beside the growth rate, not alone.

• Is the buyback buying ownership, or mopping up? 7.5%
  The count is edging down
  Stock compensation $231M (fiscal 2025), 7.5% of revenue · repurchases $502M · diluted shares -3.9% 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 · 3 of 5 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 · $3.1B
  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 Near
  Current ratio ≥ 2× · 1.56×
  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 · $0 vs $906M 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 Pass
  A profit every year (9-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 —
  Uninterrupted dividends · no dividend line tagged in the data
  What this means

  An unbroken dividend was Graham's mark of durability. This record carries no dividends-paid line in any year — common for partnerships, whose distributions file under tags the chain doesn't read — so the criterion is withheld rather than judged on silence.

• Earnings growth Near
  Earnings +33% over the record · +27%
  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 $9.77/share (latest year $12.27), the averaged base the calculator's gate runs on, and book value is $63.67/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, 2017–2025

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

• Profitable years 9 of 9
  What this means

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

• Return on capital ≥ 15% 5 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 26% → 22% (3-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

  The recent-years average (22%) sits below the early years (26%), but the latest year (25%) is back near the early level: a cyclical trough dragging the window down, not a one-way slide. The through-cycle median is 23% — read it across the cycle, not on the dip.

• 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 grew about 2% a year over the record.

• Worst year 2022 · 15.0% op. margin
  What this means

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

• Share count −1.2%/yr
  What this means

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