SW, Smurfit WestRock plc

Will it survive?

• Can it pay its interest? 2.0×
  Adequate
  Operating income $1.7B ÷ interest expense $840M
  What this means

  Comfortable in a normal year, but below the margin of safety Graham looked for. Worth checking how stable the coverage has been across a full cycle.

• How heavy is the debt, net of cash? $12.9B · 7.5× operating profit
  Heavy net debt
  Cash $892M − debt $13.8B
  What this means

  Netting $892M of cash and short-term investments against $13.8B of debt leaves $12.9B owed, about 7.5× a year's operating profit (8.0× 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? 51d
  Tight
  DSO 50 + DIO 54 − DPO 52 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 4%
  Below average through the cycle
  3-yr median, range 2%–11%; 4% latest = NOPAT $1.3B ÷ invested capital $31.2B
  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 3 years (it ran 4% 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 5%
  Solid through the cycle
  4-yr median margin, range 0%–8%; latest $1.2B = operating cash $3.4B − maintenance capex $2.2B
  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 4% of revenue this year, a 5% median across 4 years. Treating stock comp as the real expense it is (less $139M of SBC) leaves $1.1B.

• Are earnings backed by cash? 4.85×
  Cash-backed
  Cash from ops $3.4B ÷ net income $699M
  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? 75%
  Returns about half
  Dividends + buybacks $900M ÷ Owner Earnings $1.2B — this fiscal year
  What this means

  Of $1.2B Owner Earnings, $900M (75%) went back to shareholders, $900M dividends, $0 buybacks. 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 75%; across the record (2022–2025) it is 78%, the capital-allocation section below.

• Investing or harvesting? 0.86×
  Maintaining
  Capex $2.2B ÷ depreciation & amortization as filed $2.5B
  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

• Is the buyback buying ownership, or mopping up? 0.4%
  Stock pay, share count unread
  Stock compensation $139M (fiscal 2025), 0.4% of revenue · no repurchases · the share count is not comparable across these years (a split or a first listing sits in the record), so the drift is withheld
  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 · 1 of 3 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 · $31.2B
  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 Miss
  Current ratio ≥ 2× · 1.48×
  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 Miss
  Debt ≤ working capital · $13.8B vs $3.4B 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.

• 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 $1.17/share (latest year $1.33), the averaged base the calculator's gate runs on, and book value is $34.94/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, 2022–2025

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

• Profitable years 4 of 4
  What this means

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

• Return on capital ≥ 15% 0 of 3 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 11% → 5% (2-yr avg ends)

  In the filing’s words The filing claims pricing power in its strongest form — price raised, volume held — yet the margin here has not widened to match. The claim leads the record; weigh them together.

  What this means

  Through the cycle the operating margin slipped — about 11% early to 5% lately, median 6% — 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 −13%/yr
  What this means

  Owner earnings shrank about 13% a year over the record.

• Worst year 2024 · 4.8% op. margin
  What this means

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

• Dividend record rising
  What this means

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