| Metric | Current | Prior | YoY |
|---|---|---|---|
| Revenue | ¥18585.7B | ¥16705.4B | +11.3% |
| Operating Income | ¥2307.4B | ¥2090.9B | +10.4% |
| Profit Before Tax | ¥2350.7B | ¥2180.8B | +7.8% |
| Net Income | ¥1841.2B | ¥1635.1B | +12.6% |
| ROE | 8.7% | 9.0% | - |
TDK Corporation reported strong double-digit growth in its FY2026 Q3 results. Revenue reached 18,585.7 billion yen, an increase of 11.3% year-over-year from 16,705.4 billion yen. Operating income rose 10.4% to 2,307.4 billion yen from 2,090.9 billion yen in the prior year period. Net income attributable to owners totaled 1,841.2 billion yen, representing a 12.6% increase from 1,635.1 billion yen. The operating margin held steady at 12.4%, down only 11 basis points from the prior year's 12.5%, while net profit margin improved 17 basis points to 9.8% from 9.6%. Total assets expanded to 43,367.5 billion yen from 35,414.2 billion yen, and total equity strengthened to 21,093.7 billion yen from 18,112.5 billion yen. The company forecasts full-year revenue of 2,470 billion yen (up 12.0% YoY), operating income of 265 billion yen (up 18.2% YoY), and net income of 190 billion yen (up 13.7% YoY).
[Profitability] Return on equity stands at 8.6%, calculated as net profit margin of 9.8% multiplied by asset turnover of 0.429 and financial leverage of 2.06 times. Operating margin reached 12.4%, representing an 11 basis point decline from 12.5% in the prior year, as gross profit margin compressed 62 basis points to 32.3% from 32.9%, offset partially by selling, general and administrative expense ratio improvement of 68 basis points to 21.1% from 21.7%. Net profit margin improved 17 basis points to 9.8% from 9.6%, supported by net financial income of 38.1 billion yen (financial income 279.9 billion yen less financial costs 241.7 billion yen) and an effective tax rate of 21.7%. Return on assets measured 4.2%, while return on invested capital approximated 5.3%. [Cash Quality] Cash and deposits totaled 878.2 billion yen, representing 56.2% of current assets and providing 2.97 times coverage of short-term borrowings of 295.7 billion yen. Operating cash flow of 353.2 billion yen represented 1.95 times net income, indicating strong cash-backed earnings quality. [Investment Efficiency] Total asset turnover stands at 0.429, constrained by working capital expansion. Days sales outstanding extended to 155 days, days inventory outstanding reached 159 days, and days payables outstanding lengthened to 218 days, resulting in a cash conversion cycle of 96 days. These metrics indicate significant working capital inefficiency, with receivables growing 35.0% and inventory increasing 33.9% year-over-year, substantially exceeding revenue growth of 11.3%. [Financial Health] Equity ratio stands at 48.3%, up from 44.8% in the prior year. Current ratio measures 2.79 times, indicating adequate short-term liquidity. Total debt of 623.6 billion yen (short-term 295.7 billion yen, long-term 328.0 billion yen) represents a debt-to-equity ratio of 1.06 times. Interest coverage approximates 9.5 times based on operating income of 2,307.4 billion yen relative to financial costs of 241.7 billion yen, demonstrating strong debt servicing capacity.
Operating cash flow of 353.2 billion yen, representing 1.95 times net income, demonstrates strong cash generation backed by earnings. The composition reveals significant dependence on trade payables expansion of 253.9 billion yen, which provided substantial liquidity support, while trade receivables increase of 156.1 billion yen and inventory buildup of 105.4 billion yen created offsetting cash outflows. This pattern suggests supplier credit utilization as a primary driver of cash generation during the period. Investing cash flow of negative 248.3 billion yen reflects capital expenditures and financial asset movements including time deposit fluctuations. Free cash flow measured 104.9 billion yen in positive territory, providing resources for shareholder returns and strategic investments. Cash and deposits increased to 878.2 billion yen, up substantially from prior period levels, supporting a cash-to-short-term debt coverage ratio of 2.97 times. The working capital dynamics reveal a structural shift toward extended operating cycles, with days sales outstanding at 155 days and days inventory outstanding at 159 days representing significant deterioration in asset efficiency. The payables-driven cash generation pattern warrants monitoring for sustainability, as normalization of payment terms could reverse the favorable cash flow contribution in future periods.
Operating income of 2,307.4 billion yen forms the core earnings base, with net financial income contributing approximately 38.1 billion yen to ordinary income, consisting of financial income of 279.9 billion yen offset by financial costs of 241.7 billion yen. The financial income component includes interest and dividend income along with foreign exchange gains influenced by yen depreciation. Non-operating items represent approximately 2.1% of revenue, a modest contribution that supports earnings stability. Comprehensive income included foreign currency translation adjustments of 1,738.4 billion yen, reflecting substantial yen depreciation effects on overseas assets and equity. The effective tax rate of 21.7% on pretax income of 2,346.1 billion yen resulted in net income of 1,812.1 billion yen attributable to owners. Operating cash flow exceeded net income by a factor of 1.95, confirming strong cash realization of reported earnings. However, the significant expansion in trade receivables and inventory relative to revenue growth raises questions about revenue recognition timing and inventory valuation adequacy. The reliance on accounts payable expansion for operating cash flow generation, while effective in the current period, introduces sustainability concerns as supplier payment terms normalize. The gross margin compression of 62 basis points despite revenue growth suggests pricing pressure or unfavorable product mix shifts that may pressure future earnings quality.
Working capital deterioration poses the most significant operational risk, with days sales outstanding of 155 days and days inventory outstanding of 159 days representing extreme extensions that substantially exceed industry norms. This inventory accumulation of 33.9% growth against 11.3% revenue growth creates exposure to obsolescence charges, markdown pressures, and potential write-downs if demand softens or product transitions occur. The receivables buildup carries credit risk and suggests either extended payment terms to support sales or collection difficulties that could materialize as bad debt expense. Foreign exchange exposure represents a second critical risk factor, as comprehensive income included 1,738.4 billion yen in currency translation adjustments and the company's global operations create natural exposure to yen appreciation that would reverse recent translation gains and potentially compress margins on overseas sales. Third, the high dividend payout ratio of 92.3% based on quarterly dividend payments, combined with free cash flow coverage of only 0.63 times dividends, constrains financial flexibility for growth investments and creates sustainability concerns if operating performance or working capital conversion deteriorates from current levels.
[Industry Position] (Reference - Proprietary Analysis) Profitability: Operating margin of 12.4% ranks favorably above the manufacturing industry median of 8.3% (IQR: 4.8%-12.6%), placing TDK in the upper quartile. Net profit margin of 9.8% significantly exceeds the industry median of 6.3% (IQR: 3.2%-9.0%), reflecting strong operational execution and favorable financial income contribution. Return on equity of 8.6% surpasses the industry median of 5.0% (IQR: 2.9%-8.1%), indicating superior equity utilization relative to manufacturing peers. Financial Health: Equity ratio of 48.3% falls below the industry median of 63.8% (IQR: 49.5%-74.7%), positioning TDK near the lower quartile and reflecting higher financial leverage relative to the conservative capital structures common in manufacturing. Current ratio of 2.79 times compares favorably to the industry median of 2.84 times (IQR: 2.10x-3.81x), indicating adequate but not exceptional short-term liquidity. Efficiency: Asset turnover of 0.429 substantially underperforms the industry median of 0.58 (IQR: 0.42-0.66), ranking in the lower half of the distribution and highlighting the working capital efficiency challenges. Days inventory outstanding of 159 days significantly exceeds the industry median of 109 days (IQR: 50-155 days), confirming inventory management as a material efficiency gap. Days sales outstanding of 155 days dramatically exceeds the industry median of 83 days (IQR: 68-115 days), representing a critical outlier that warrants immediate management attention. Days payables outstanding of 218 days far exceeds the industry median of 56 days (IQR: 42-90 days), indicating aggressive supplier credit utilization that may be unsustainable. Growth: Revenue growth of 11.3% year-over-year substantially outpaces the industry median of 2.7% (IQR: -1.9% to 7.9%), placing TDK in the top quartile for top-line expansion among manufacturing companies. (Industry: Manufacturing, N=98 companies, Period: 2025-Q3, Source: Proprietary Analysis)
TDK demonstrates strong revenue momentum with 11.3% growth and profitability metrics that exceed industry medians, particularly operating margin of 12.4% versus industry median of 8.3% and net profit margin of 9.8% versus industry median of 6.3%. The company maintains solid financial health with an equity ratio of 48.3%, debt-to-equity of 1.06 times, and interest coverage approximating 9.5 times, supporting capacity for continued business investment and shareholder returns. However, working capital management represents the critical constraint on value creation, as days sales outstanding of 155 days and days inventory outstanding of 159 days both rank as significant outliers relative to manufacturing industry norms of 83 days and 109 days respectively. The 35.0% growth in receivables and 33.9% expansion in inventory against 11.3% revenue growth indicates operational discipline deterioration that directly constrains cash conversion and asset turnover. Operating cash flow of 353.2 billion yen demonstrates strong generation capacity, yet the composition reveals heavy dependence on accounts payable expansion of 253.9 billion yen and days payables outstanding of 218 days versus industry median of 56 days, suggesting supplier credit extension that may normalize in future periods and reverse the favorable cash flow contribution. The dividend payout ratio of 92.3% with free cash flow coverage of only 0.63 times creates a tension between shareholder returns and reinvestment capacity, particularly given the working capital demands evident in current asset buildup. Full-year guidance for revenue of 2,470 billion yen and operating income of 265 billion yen implies Q4 sequential improvement that depends critically on inventory reduction and receivables collection to validate earnings quality and cash generation sustainability.
This report was automatically generated by AI analyzing XBRL earnings data as an earnings analysis tool. This is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled from publicly available earnings data. Please make investment decisions at your own responsibility and consult professionals as needed.
TDK's FY2026 Q3 (nine months to Dec-25) delivered a solid beat on growth with stable margins and strong cash generation. Revenue rose 11.3% YoY to ¥1,858.6bn, with operating income up 10.4% YoY to ¥230.7bn and net income up 12.6% YoY to ¥184.1bn. Gross margin printed at 32.3% (down 60bps YoY from 32.9%), while operating margin was 12.4% (down 10bps YoY from 12.5%). Net margin improved slightly to 9.9% (up ~10bps YoY). Segment mix was a tailwind: Energy Applied products (batteries, power) grew 14.4% and Sensors +23.5% in Q3, while Passive Components grew modestly. Segment profit expansion was broad-based in Sensors and Magnetic Applied products, offsetting softer margin in Energy in the quarter. Geographically, China and broader Asia drove top-line growth (China +12.0% YoY; Asia ex-China +17.9%), reflecting handset and EV-related demand normalization. Earnings quality was strong: operating cash flow of ¥353.2bn was 1.95x net income, supported by disciplined cash management and increased payables. Free cash flow was ¥104.9bn despite working capital build and continued investment. Financial leverage (A/E) stands at 2.06x with an equity ratio of 48.3%, consistent with an investment-grade profile. Working capital intensity remains elevated with accounts receivable at ¥787.2bn and inventories at ¥548.9bn, which, alongside payables at ¥682.0bn, elongates the cash conversion cycle. The DuPont ROE is 8.6%, with net margin resilience offset by moderate asset turnover (0.429x) and a measured increase in leverage. Equity method income is small (¥0.5bn), and performance is driven by core operations. Full-year guidance implies continued revenue growth to ¥2.47tn and operating income of ¥265bn, pointing to steady execution into Q4. Dividend policy implies an annual post-split DPS of ¥30, aligned with earnings trajectory. Net comprehensive income (¥358.8bn) benefitted from FX translation gains, bolstering equity. Overall, TDK exits Q3 with strong momentum, robust liquidity, and disciplined investment, while elevated receivable and inventory days warrant close monitoring into year-end.
ROE decomposition: 8.6% = 9.8% net profit margin × 0.429 asset turnover × 2.06x financial leverage. The largest YoY change within the drivers was margin mix: gross margin contracted 60bps to 32.3% on cost and mix, while operating margin edged down 10bps to 12.4%, and net margin improved ~10bps to 9.9% on a lighter effective tax rate (21.7%) and positive net finance income. Business drivers: Energy Applied products led revenue (+14.4%), but Q3 segment margin in Energy softened (17.9% vs 22.6% in prior-year Q3), while Sensors and Magnetic saw sharp profit expansion (Q3 segment OP margin 12.0% and 10.6%, respectively) on volume recovery and better utilization. Asset turnover remains moderate as inventories (+¥138.9bn) and receivables (+¥204.1bn) grew ahead of sales, partially offset by higher payables (+¥289.5bn). Sustainability: the slight operating margin compression appears mix- and investment-driven; the broad-based profit improvement in Sensors and Magnetic suggests improving operating leverage is durable if end-demand holds. Watch SG&A growth (+¥28.0bn YoY) versus revenue; the increase (approximately +7.7%) trailed top-line growth (+11.3%), indicating positive operating discipline.
Top-line growth of 11.3% was diversified: Energy Applied (+¥129.3bn), Sensors (+¥24.8bn), and Magnetic (+¥21.4bn) contributed, while Passive grew modestly (+3.2%) and Others declined (-2.6%). Quarterly (Oct–Dec) revenue rose 16.2% YoY, with Sensors (+23.5%), Magnetic (+30.5%), and Energy (+16.4%) accelerating, underscoring demand recovery in smartphones, storage, and EV-related applications. Segment profitability mix improved outside Energy in Q3, with Sensors and Magnetic margins expanding meaningfully. Regional growth was anchored by China and Asia, consistent with consumer electronics and supply chain normalization. Guidance for FY2026 (sales ¥2.47tn, operating income ¥265bn, NP attributable to owners ¥190bn) implies continued momentum into Q4 and disciplined cost control. Outlook drivers: handset replacement, EV penetration, industrial automation, and power management demand; key watchpoints are pricing and raw material costs.
Equity ratio is 48.3% with total equity of ¥2,109.4bn vs total assets of ¥4,336.8bn, indicating a conservative capital structure. Debt-to-equity is 1.06x, consistent with investment-grade comfort. Liquidity is solid: current assets ¥2,435.6bn vs current liabilities ¥1,594.3bn translate to a current ratio of ~1.53. Short-term bonds and borrowings are ¥295.7bn against cash and equivalents of ¥878.2bn and sizable receivables, limiting near-term refinancing risk. Non-current bonds and borrowings decreased to ¥328.0bn, while lease liabilities total ~¥70.8bn (current ¥12.6bn; non-current ¥59.2bn). No red flags on maturity mismatch given available liquidity and operating cash flow. Deferred tax liabilities rose to ¥105.8bn; net defined benefit liability is ¥106.3bn, manageable relative to equity. No off-balance sheet obligations were noted in the provided data.
Cash and cash equivalents: +¥180.9bn (+26%) - OCF strength and FX translation gains lifted liquidity. Accounts receivable: +¥204.1bn (+35%) - Demand recovery and extended terms increased DSO, monitor collection. Inventories: +¥138.9bn (+34%) - Build to support growth and supply chain; raises obsolescence risk. Property, plant and equipment: +¥154.4bn (+15%) - Continued capacity and technology investments. Accounts payable: +¥289.5bn (+74%) - Supplier credit expansion supporting WC; watch reversal in OCF. Short-term bonds and borrowings: +¥108.5bn (+58%) - Increased ST funding alongside higher WC needs. Other current financial liabilities: +¥55.4bn (+48%) - Higher current financial obligations, consistent with activity levels. Other components of equity (OCI): +¥171.9bn (+34%) - Significant FX translation gains bolstering equity. Total assets: +¥795.3bn (+22%) - Scale-up driven by WC expansion and capex.
OCF was ¥353.2bn vs net income of ¥184.1bn (OCF/NI 1.95x), signaling high earnings quality. Key drivers were an increase in payables (+¥253.9bn) partially offset by increases in receivables (-¥156.1bn) and inventories (-¥105.4bn). Free cash flow was ¥104.9bn after investing cash outflows of ¥248.3bn, with gross capex represented by PPE additions of ¥197.9bn. The working capital build supports growth but elongates the cash conversion cycle; reliance on payables to fund WC warrants monitoring. No signs of aggressive working capital manipulation are evident; tax and interest cash flows (tax paid ¥33.0bn; interest paid ¥6.3bn) align with P&L. FX translation added ¥57.7bn to cash, lifting period-end cash to ¥878.2bn.
DPS: Q2 ¥70 (pre-split), year-end ¥16 (post-split), consistent with a post-split annual DPS of ¥30 as disclosed. Payout ratio on the period basis is approximately 92% using provided EPS and DPS constructs. Dividends paid year-to-date were ¥60.7bn. Free cash flow of ¥104.9bn covers dividends by ~1.7x, indicating adequate coverage alongside ongoing capex. With net cash generation and an equity ratio of 48.3%, near-term dividend capacity appears supported. Management’s disclosure indicates a stable annualized dividend posture post stock split.
Business risks include Demand cyclicality in smartphones, PCs, and storage affecting Passive, Sensors, and Magnetic segments, Commodity and raw material cost volatility impacting gross margin (ceramics, metals, energy), Product mix shift away from high-margin Energy in the quarter impacting consolidated margins, Geographic concentration in China and Asia exposing revenue to regional macro and policy shifts.
Financial risks include Elongated working capital cycle with high receivables (¥787.2bn) and inventories (¥548.9bn), Short-term borrowings (¥295.7bn) require disciplined liquidity management despite strong cash balances, FX translation volatility materially impacts OCI and equity.
Key concerns include High DSO at 155 days and DIO at 159 days extend the cash conversion cycle and increase credit/obsolescence risk, Quarterly margin softness in Energy Applied products (segment OP margin 17.9% in Q3) if sustained could cap operating leverage, Revenue growth is leaning on China/Asia; any demand hiccup could leave elevated inventories.
Key takeaways include Double-digit top-line growth with stable operating margin at 12.4% and slight net margin expansion, Cash generation is robust (OCF/NI 1.95x); FCF positive despite inventory and receivable build, Sensors and Magnetic segments show strong profit inflection; Energy growth continues with quarter-specific margin softness, Balance sheet remains conservative (equity ratio 48.3%, cash ¥878bn), supporting investment and dividends.
Metrics to watch include Receivable days (155) and inventory days (159) trajectory and channel inventory normalization, Energy Applied products segment margin recovery in Q4, Capex pace vs. revenue (PPE additions ¥197.9bn) and resulting ROIC, Payables normalization and impact on OCF in subsequent quarters, China and Asia demand trends and FX translation effects.
Regarding relative positioning, Within Japanese electronic components peers, TDK combines diversified growth drivers (batteries, sensors, magnetic) with solid balance sheet strength; near-term working capital intensity is higher than best-in-class, but operating execution and cash generation remain competitive.