DAIKOKU DENKI (6430) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative Q3 period of the fiscal year ending March 2026, revenue and earnings declined, with a slowdown in the core Information Systems Business weighing on consolidated performance. Revenue was ¥45.62B (-5.0% YoY), Operating Income was ¥9.94B (-16.1%), Ordinary Income was ¥10.02B (-15.5%), and Net Income was ¥6.78B (-16.5%). The decline in earnings exceeding the rate of revenue decline indicates that fixed corporate expenses could not be sufficiently absorbed during the period of declining sales. The Operating Income margin declined to 21.8% from 24.7% in the same period of the previous year, but remained at a high level.

Factors Affecting Performance

【Revenue】Revenue was ¥45.62B, down -5.0% YoY. Revenue from the core Information Systems Business declined to ¥39.08B (-12.7%), and the slowdown in this business, which accounts for 85.7% of consolidated revenue, weighed on overall performance. Meanwhile, the Amusement Business achieved substantial revenue growth to ¥5.12B (+85.4%), while the Other Businesses also expanded due to the inclusion of newly consolidated subsidiaries and a change in the presentation classification of real estate rental income. Overall, the decline in the core business was partially offset by growth in non-core businesses.

【Profit and Loss】Operating Income was ¥9.94B (-16.1%), while segment profit in the Information Systems Business declined to ¥10.63B (-21.5%), with its profit margin also falling to 27.2% from 30.3% in the previous year. The Amusement Business provided support, with profit increasing substantially to ¥1.11B and its profit margin improving to 21.8%, but this was insufficient to offset the decline in profit from the core business. Corporate expenses increased to ¥1.85B (+13.0%), becoming a factor pressuring profit during the period of declining sales. Ordinary Income was ¥10.02B, only slightly higher than Operating Income, indicating a limited impact from non-operating gains and losses. Extraordinary gains and losses resulted in a net loss of ¥0.035B (including an impairment loss on investment securities of ¥0.03B), having a minor impact on Net Income. In conclusion, revenue and earnings declined, primarily due to slowing demand in the core business and lower fixed-cost absorption.

Segment Analysis

The Information Systems Business, which accounts for 85.7% of revenue, reported revenue of ¥39.08B (-12.7%) and segment profit of ¥10.63B (-21.5%). Although it remains the core contributor to consolidated profit, it continued to experience declines in revenue and earnings, as well as a lower profit margin of 27.2% versus 30.3% in the previous year, making it the primary factor weighing on consolidated performance. The Amusement Business expanded substantially, with revenue of ¥5.12B (+85.4%) and profit of ¥1.11B, while its profit margin also improved to 21.8%. However, its scale remains approximately 1/7 that of the Information Systems Business, limiting its impact on consolidated performance. The Other Businesses generated revenue of ¥1.43B, supported by the inclusion of newly consolidated subsidiaries and a change in presentation to recognize real estate rental income as Revenue; this should be distinguished from organic growth in existing businesses.

Key Financial Indicators

【Profitability】The Operating Income margin of 21.8% (24.7% in the previous year) and Net Income margin of 14.8% (16.9% in the previous year) both declined from the previous year, but ROE remained at a favorable level of 13.4% despite the low-leverage structure represented by an Equity Ratio of 80.7%. 【Cash Quality】Customer-related receivables, comprising accounts receivable and electronically recorded monetary claims, amounted to ¥13.96B, while inventories amounted to ¥8.37B, most of which consisted of finished products. Both DSO and DIO exceeded 60 days, and the CCC exceeded 131 days, indicating increased working capital tied up in operations. 【Investment Efficiency】Total asset turnover was approximately 0.73x, while goodwill of ¥0.97B represented only 1.9% of net assets, indicating limited reliance on intangible assets. 【Financial Soundness】With an Equity Ratio of 80.7%, a current ratio of 384.9%, a quick ratio of 308.5%, and cash and deposits of ¥18.55B, the financial foundation is extremely conservative and the Company has a high capacity to meet short-term obligations.

Cash Flow Analysis

Because figures from the cash flow statement are not included in the disclosed data, cash trends are analyzed based on changes in the balance sheet. Cash and deposits amounted to ¥18.55B, increasing from ¥16.96B in the same period of the previous year. Retained earnings also accumulated to ¥49.70B (¥44.56B in the previous year), indicating continued accumulation of funds through retained earnings. Meanwhile, accounts receivable and notes receivable increased significantly to ¥10.32B from ¥4.16B in the same period of the previous year, while electronically recorded monetary claims also expanded to ¥3.64B. The expansion of receivables despite declining revenue suggests that funds are being tied up in working capital. Inventories amounted to ¥8.37B, down from ¥10.67B in the same period of the previous year, but finished products still accounted for the majority of the balance, meaning the pace of inventory sales will influence future cash generation. Overall, cash on hand is ample, but declining working capital efficiency through receivables and inventories remains a point to monitor from the perspective of cash efficiency.

Quality of Earnings

Non-operating income of ¥0.11B (including dividends received of ¥0.03B) and non-operating expenses of ¥0.03B (including foreign exchange losses of ¥0.02B) were both small. Ordinary Income of ¥10.02B was therefore closely aligned with core Operating Income of ¥9.94B, with no evidence of earnings being inflated by non-operating factors. Extraordinary gains and losses comprised extraordinary income of ¥0.0B and extraordinary losses of ¥0.04B (impairment losses of ¥0.01B and valuation losses on investment securities of ¥0.03B). The resulting net one-time loss of ¥0.035B pressured Net Income, but its impact was minor at approximately 0.5% of Net Income. Comprehensive Income was ¥6.78B, almost identical to Net Income of ¥6.78B. Changes in valuation differences on available-for-sale securities and retirement benefit adjustments were also small, limiting the divergence between Net Income and Comprehensive Income. Accordingly, current-period earnings are considered to be primarily derived from core operations, with limited distortion from one-time factors.

Earnings Forecast and Guidance

The full-year Company forecast is Revenue of ¥51.0B (-11.3% YoY), Operating Income of ¥7.50B (-38.7%), Ordinary Income of ¥7.50B (-38.7%), and EPS of ¥323.40. As of the cumulative Q3 period, progress rates were 89.4% for Revenue, 132.5% for Operating Income, 133.6% for Ordinary Income, and 144.1% for Net Income, substantially exceeding the normal 75% level. If the Company maintains its forecast, the calculation implies that both Operating Income and Net Income will be negative on a standalone Q4 basis. This may reflect seasonality, the timing shift of project recognition between periods, or conservative assumptions in the forecast. Going forward, the key points of focus will be whether the full-year forecast is revised and the profit and loss trend in Q4.

Shareholder Returns

The full-year dividend forecast is ¥100 per share (the previous year included an interim dividend of ¥30 in the annual dividend). Based on the average number of shares outstanding during the period of 14,542,019 shares, the total annual dividend is calculated at approximately ¥1.45B. The Payout Ratio against the full-year Net Income forecast of ¥4.70B is approximately 30.9%, leaving a comfortable buffer from the perspective of sustainability, for which approximately 60% is used as a benchmark. The strong financial foundation, including an Equity Ratio of 80.7% and cash and deposits of ¥18.55B, supports the Company’s ability to pay the forecast dividend. No disclosure regarding share buybacks has been made, and the shareholder return assessment therefore covers dividends only.

Risk Factors

1. Slowdown in the core business: The Information Systems Business reported Revenue of ¥39.08B (-12.7%) and segment profit of ¥10.63B (-21.5%). Despite being the core business contributing to consolidated profit, it continues to experience declines in revenue and earnings. Demand trends in this business will determine the sustainability of consolidated performance.

2. Declining working capital efficiency: Accounts receivable and electronically recorded monetary claims totaled ¥13.96B, while finished products accounted for ¥8.37B of inventories, suggesting longer collection periods and slower inventory absorption. The impact on short-term liquidity is limited due to cash and deposits of ¥18.55B, but monitoring is necessary from the perspective of cash generation.

3. Divergence between the full-year forecast and quarterly progress: Progress rates for Operating Income and Net Income were 132.5% and 144.1%, respectively, substantially exceeding normal levels. Assuming the Company maintains its forecast, the calculation implies that profit and loss will turn negative in Q4. Whether the forecast is revised and the manner in which expenses are recognized at the fiscal year-end are sources of uncertainty.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The Company’s Operating Income margin and Net Income margin both substantially exceed the industry median, indicating that profitability is at a superior level within the industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, indicating a relatively pronounced slowdown within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. Although the Operating Income margin of 21.8%, Net Income margin of 14.8%, and ROE of 13.4% declined from the previous year, they remained at high levels despite the low-leverage structure represented by an Equity Ratio of 80.7% and a current ratio of 384.9%. The strength of profitability and the financial foundation are key characteristics of the results.

2. The decline in revenue and earnings and the lower profit margin in the Information Systems Business, the core contributor to consolidated profit, were the primary factors weighing on consolidated performance. Increased revenue and earnings in the Amusement Business partially offset this impact. While business portfolio diversification is progressing, the performance of the core business continues to determine consolidated results.

3. The profit progress rate for the cumulative Q3 period exceeded 130% against the full-year forecast. If the Company maintains its forecast, the calculation implies that profit and loss will deteriorate in Q4. Whether the forecast is revised and trends in expense recognition and inventory processing at the fiscal year-end are key points of focus in the results.

Theoretical Stock Price (Reference Value)

Sensitivity: ¥3,425–¥3,626 at ±1% for the cost of equity, and ¥3,522–¥3,525 at ±0.1 for ω.

Notes:

• Because Net Income progress against the full-year forecast is 144%, exceeding the standard level of 75%, forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of schedule in progress tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Model: Residual Income Model (Ohlson-type model with an explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; it is not a forecast of the market price or a recommendation of any specific investment action, and does not predict or guarantee the future stock price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, and you should consult a professional as necessary.

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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was resiliently profitable but below the prior-year earnings level, with declining core Information Systems activity only partly offset by a strong Amusement recovery. Cumulative revenue for the nine months was ¥45.62bn, down 5.0% year on year. Operating income was ¥9.94bn, down 16.1%, and profit attributable to owners was ¥6.78bn, down 16.5%. The operating margin contracted 286bp to 21.8% from 24.6% in the prior-year period. Gross margin declined 116bp to 45.3%, indicating that the revenue decline was accompanied by weaker gross-profit conversion. SG&A expense rose 2.4% to ¥10.71bn despite lower sales, creating negative operating leverage and contributing to the larger decline in operating income than revenue. The core Information Systems segment generated ¥39.07bn of sales and ¥10.63bn of segment profit, with sales down 12.7% and profit down 21.5%. Conversely, the Amusement segment expanded sales 85.4% to ¥5.12bn and segment profit increased sharply to ¥1.11bn from ¥0.03bn. This segment recovery improved diversification, although it remains materially smaller than Information Systems. Other businesses produced ¥1.43bn of sales, compared with ¥0.53bn a year earlier, reflecting the broadened business portfolio. Reported annualized ROE remained strong at 17.8%, supported by a 14.8% net margin and low financial leverage. Financial resilience is substantial, with a 384.9% current ratio, ¥18.55bn of cash and deposits, and total liabilities representing only 19.3% of total assets. Working-capital efficiency is the principal near-term balance-sheet issue: receivables increased 147.9% year on year, while quality alerts indicate annualized DSO of 62 days, DIO of approximately 92-96 days, and a 131-day cash-conversion cycle. The nine-month operating income already exceeds the full-year forecast of ¥7.50bn by ¥2.44bn, while nine-month owner-attributable profit exceeds the ¥4.70bn full-year target by ¥2.08bn. This creates a substantial likelihood that the current guidance is conservative or that management anticipates a pronounced Q4 normalization. Forward performance will depend primarily on stabilization in Information Systems demand, conversion of elevated receivables and finished-goods inventory into cash, and the durability of the Amusement segment's recovery.

Profitability Analysis

Annualized DuPont ROE is 17.8%, decomposed into a 14.8% net profit margin, 0.969x asset turnover, and 1.24x financial leverage. The principal contributor to the high ROE is profitability rather than balance-sheet leverage, consistent with the conservative capital structure. The 21.8% EBIT margin and 14.8% net margin remain above the stated excellent thresholds despite year-on-year compression. Gross margin fell to 45.3% from 46.4%, while operating margin fell to 21.8% from 24.6%. The larger operating-margin decline relative to gross-margin decline reflects SG&A rising to ¥10.71bn from ¥10.46bn while revenue fell 5.0%. Accordingly, negative operating leverage is the most notable year-on-year profitability deterioration. The Information Systems segment is the core business by segment-profit contribution, accounting for ¥10.63bn of segment profit, or roughly 90% of aggregate segment profit before corporate costs. Its segment margin declined to 27.2% from 30.3%, and its sales contraction of 12.7% is the central driver of consolidated earnings pressure. The Amusement segment's margin improved to 21.8% from 1.2%, demonstrating a meaningful rebound in profitability alongside its sales growth. Corporate and unallocated expenses increased to ¥1.85bn from ¥1.64bn, further reducing conversion from segment profit to consolidated operating income. The tax burden factor was 0.678, corresponding to a 32.1% effective tax rate, which modestly reduced net-income conversion versus a normalized tax burden above 0.70. The interest burden was 1.005 and interest coverage was 4,937.9x, confirming that financing costs are immaterial to earnings. Extraordinary losses were ¥0.36bn, including a ¥0.07bn impairment loss in the Amusement business, and were small relative to ¥6.78bn of net income. JGAAP goodwill amortization can reduce operating and net income relative to IFRS reporters, but goodwill is only ¥0.97bn, or 1.9% of equity, limiting balance-sheet M&A distortion.

Growth Assessment

Revenue declined 5.0% year on year, but the underlying segment mix was sharply divergent. Information Systems revenue decreased by ¥5.66bn to ¥39.07bn, more than accounting for the consolidated sales decline. Amusement revenue increased by ¥2.36bn to ¥5.12bn, providing a significant partial offset. Other business revenue increased by ¥0.89bn to ¥1.43bn, supported by the expanded scope of businesses and the revised presentation of real-estate rental activity within revenue and cost of sales. The core Information Systems segment's 21.5% profit decline exceeded its 12.7% sales decline, signaling reduced operating efficiency as volumes declined. The Amusement segment's profit growth to ¥1.11bn indicates improved utilization or product mix, but its smaller scale means it cannot yet fully neutralize weakness in the core operation. Consolidated gross profit declined 7.4% to ¥20.65bn, exceeding the pace of revenue decline. Operating income declined 16.1%, demonstrating that current earnings growth is constrained by both gross-margin pressure and elevated fixed costs. Nine-month sales represent 89.4% of the ¥51.00bn full-year forecast, versus a standard 75% Q3 progress rate. Operating-income progress is 132.5% of the ¥7.50bn full-year forecast, and owner-attributable-profit progress is 144.1% of the ¥4.70bn forecast. These deviations exceed 10 percentage points and are material. They imply either a highly conservative forecast, anticipated Q4 cost or demand pressures, or both. The annual forecast calls for revenue to decline 11.3% and operating income to decline 38.7%, which is materially more cautious than the nine-month run rate. Sustainable growth requires a recovery in Information Systems order activity and disciplined control of SG&A relative to revenue.

Financial Health

The balance sheet is strong. Current assets of ¥42.19bn exceed current liabilities of ¥10.96bn by ¥31.23bn, producing a 384.9% current ratio. The 308.5% quick ratio confirms that liquidity does not depend on inventory liquidation. Cash and deposits totaled ¥18.55bn, equal to 29.6% of total assets and substantially above current liabilities. Total liabilities were ¥12.14bn, or 19.3% of total assets, while total equity was ¥50.64bn. The reported debt-to-equity ratio of 0.24x is conservative and well below the 2.0x risk threshold. There is no apparent maturity mismatch, as current assets are approximately 3.85 times current liabilities. Interest expense was only ¥0.02bn, and interest coverage of 4,937.9x demonstrates negligible financing stress. Accounts receivable increased by ¥6.16bn, or 147.9%, to ¥10.32bn. Including electronically recorded monetary claims of ¥3.64bn, customer-credit exposure is an important monitoring item despite the otherwise liquid balance sheet. Inventories decreased by ¥2.30bn, or 21.6%, to ¥8.37bn, but remain large relative to the quarterly operating cycle. Finished goods account for virtually all reported inventory at ¥8.37bn, while raw materials and work in process are only ¥0.33bn and ¥0.01bn, respectively. This composition increases exposure to demand forecasting, product-cycle timing, and obsolescence rather than raw-material procurement risk. Goodwill declined to ¥0.97bn from ¥1.07bn and represents only 1.5% of total assets, so goodwill impairment risk is limited at the consolidated level. Intangible assets of ¥5.17bn, including ¥4.13bn of software, represent 8.2% of assets, indicating a meaningful but balanced digital-asset base.

Notable B/S Changes

Accounts receivable: +¥6.16bn (+147.9%) to ¥10.32bn - materially higher customer-credit exposure and a key contributor to the 62-day annualized DSO alert. Finished goods: -¥2.30bn (-21.6%) to ¥8.37bn - inventory reduction is constructive, but the remaining balance is still associated with approximately 92-96 annualized inventory days and obsolescence risk. Cash and deposits: +¥1.59bn (+9.4%) to ¥18.55bn - reinforces substantial liquidity and capacity to absorb working-capital volatility. Accounts payable: +¥0.48bn (+24.4%) to ¥2.45bn - increased supplier funding partly supports working capital, although it does not offset the long cash-conversion cycle. Software: +¥0.42bn (+11.2%) to ¥4.13bn - continued investment in digital assets; software represents the majority of ¥5.17bn intangible assets. Goodwill: -¥0.10bn (-9.6%) to ¥0.97bn - goodwill remains low at 1.9% of equity, limiting group-level M&A valuation and impairment exposure.

Cash Flow Quality

Working-capital indicators require close attention to earnings-to-cash conversion. The annualized DSO quality alert of 62 days exceeds the 60-day warning threshold. The receivables balance increased 147.9% year on year to ¥10.32bn, and electronic receivables add a further ¥3.64bn of operating claims. This pattern raises the risk that revenue recognition is converting into cash more slowly than in the prior period. The annualized DIO alerts of approximately 92-96 days exceed both the 60-day manufacturing efficiency benchmark and the 90-day warning threshold. Finished goods of ¥8.37bn dominate inventory, making cash conversion sensitive to sell-through rates and demand conditions in the company's product markets. The 131-day annualized cash-conversion cycle exceeds the 120-day warning level. The root cause of the long cycle is the combined burden of slower collection and elevated finished-goods holding periods. This is not offset by a weak liquidity position, because cash holdings and working capital remain substantial, but it reduces the quality and immediacy of profit conversion. The impact on the investment thesis is that strong reported margins and ROE should be assessed alongside evidence of receivable collection and inventory normalization. Accounts payable were ¥2.45bn and electronically recorded obligations were ¥3.10bn, providing some supplier financing, but not enough to eliminate the long operating cash cycle. The year-on-year decline in inventory is constructive, yet current inventory days remain elevated. The most relevant cash-flow indicators for subsequent periods are receivables growth relative to sales, finished-goods sell-through, DSO, DIO, and the cash-conversion cycle.

Dividend Sustainability

The company paid an interim Q2 dividend of ¥30 per share. The calculated payout ratio based on the paid interim dividend and nine-month net income is 6.6%, indicating that the payment made to date is comfortably covered by reported earnings. The full-year dividend forecast is ¥100 per share. Based on forecast EPS of ¥323.40, the implied full-year dividend payout ratio is approximately 30.9%, below the 60% sustainability benchmark. The expected remaining year-end dividend implied by the forecast is ¥70 per share. The forecast dividend is also covered by nine-month EPS of ¥465.96, although the comparison should be interpreted against the full-year payment schedule. The balance sheet provides strong support for distributions, with ¥18.55bn of cash and deposits and low leverage. Retained earnings of ¥49.70bn provide a substantial capital buffer. Dividend sustainability is therefore supported by earnings capacity, liquidity, and a moderate forecast payout ratio. The principal consideration is not solvency but whether the company maintains earnings and cash conversion as receivables and finished-goods inventory normalize. No total return ratio is calculated because share-repurchase data is not provided.

Risk Assessment

Business risks include Core Information Systems risk: segment sales fell 12.7% to ¥39.07bn and segment profit fell 21.5% to ¥10.63bn; sustained weakness would pressure the group's largest profit source., Amusement-market cyclicality: the Amusement segment recovered strongly, with sales up 85.4% and profit reaching ¥1.11bn, but demand in amusement-related equipment and systems can be cyclical and sensitive to customer capital-spending decisions., Finished-goods obsolescence risk: finished goods of ¥8.37bn constitute nearly all inventory, making inventory value sensitive to sell-through, product refresh cycles, and changes in customer demand., Margin risk: gross margin declined 116bp and operating margin declined 286bp, showing that lower revenue has reduced cost absorption., Software and technology-execution risk: software assets of ¥4.13bn are a material component of the asset base, requiring continued commercial relevance and successful deployment..

Financial risks include Receivables quality alert: annualized DSO of 62 days is above the 60-day warning threshold, while accounts receivable increased 147.9% year on year., Inventory quality alert: annualized DIO of approximately 92-96 days exceeds the relevant 60-day and 90-day warning thresholds., Cash-conversion-cycle alert: the annualized 131-day cycle exceeds the 120-day warning threshold, creating risk that reported profit converts to cash more slowly., Forecast-execution risk: nine-month operating income is 132.5% of the full-year forecast and owner-attributable profit is 144.1%, creating uncertainty around the timing and magnitude of anticipated Q4 normalization., Impairment risk within Amusement: a ¥0.07bn impairment was recognized on business assets due to recoverability considerations, although the absolute amount is limited..

Key concerns include The root cause of the high-receivable-days alert is a sharp rise in customer claims despite lower consolidated revenue. Its impact is heightened scrutiny of collection timing and revenue-to-cash conversion., The root cause of the high-inventory-days alerts is the elevated finished-goods balance. The impact is potential markdown, obsolescence, and working-capital pressure if demand does not meet expectations., The root cause of the long cash-conversion-cycle alert is the combination of above-threshold DSO and DIO. The impact is reduced capital efficiency despite ample absolute liquidity., SG&A increased 2.4% while revenue declined 5.0%. If this cost trend persists, operating-margin recovery will depend on a meaningful rebound in sales rather than cost discipline alone., The company is financially robust, so the principal risk profile is operational and working-capital execution rather than refinancing or leverage risk..

Investment Implications

Key takeaways include Profitability remains high, with a 21.8% operating margin, 14.8% net margin, and annualized ROE of 17.8%., The Information Systems business remains the core earnings engine but experienced a 12.7% sales decline and a 21.5% segment-profit decline., The Amusement segment delivered a substantial recovery, but its smaller scale limits its ability to fully offset weakness in Information Systems., Liquidity and solvency are exceptionally strong, with a 384.9% current ratio, ¥18.55bn of cash, and a 0.24x debt-to-equity ratio., Working-capital efficiency is the key analytical constraint, given DSO of 62 days, DIO of approximately 92-96 days, and a 131-day cash-conversion cycle., The nine-month earnings outcome is well ahead of full-year guidance, making forecast revision potential and Q4 assumptions central to subsequent disclosures..

Metrics to watch include Information Systems segment sales and segment margin, Amusement segment sales growth and profit durability, Consolidated gross margin and SG&A-to-sales ratio, Accounts receivable and electronically recorded monetary claims, Annualized DSO, finished-goods inventory, annualized DIO, and cash-conversion cycle, Full-year guidance revision, particularly the implied Q4 operating-income trajectory, Inventory impairment, markdowns, and further asset impairment in the Amusement business, Dividend policy execution against the ¥100 per-share full-year forecast.

Regarding relative positioning, The company combines above-benchmark profitability and annualized ROE with a notably conservative balance sheet. Relative to leveraged manufacturers, financial risk is low; relative to efficient manufacturing benchmarks, however, the 62-day DSO, approximately 92-96-day DIO, and 131-day cash-conversion cycle indicate weaker working-capital efficiency. Its valuation of earnings quality should therefore depend on whether the strong reported profitability is accompanied by improved collection and finished-goods turnover.