USHIO (6925) FY2027 Q1 Earnings Report

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Executive Summary

The key feature of Q1 was a significant expansion in profit, including a return to profitability, partly due to the reversal of the extraordinary loss recorded in the same period of the previous year. Revenue was ¥489.9B (up +27.7% YoY), Operating Income was ¥49.5B (up +410.5%), Ordinary Income was ¥53.1B (up +230.5%), and Net Income attributable to owners of the parent was ¥30.3B (recovering from a ¥28.3B loss in the same period of the previous year, up +207.1%). All segments posted double-digit revenue growth, while an improvement in the gross margin and a decline in the SG&A ratio occurred simultaneously, resulting in an expansion of the Operating Income margin to 10.1% (2.5% in the previous year).

Factors Affecting Business Performance

【Revenue】Revenue was ¥489.9B, representing a +27.7% increase YoY. All five segments recorded double-digit revenue growth: Visual Imaging, the largest segment (47.0% of the revenue mix), grew +25.8%; Industrial Processes (42.0% of the revenue mix) grew +29.9%; Life Sciences grew +34.2%; and Photonics Solutions grew +29.1%. Demand expansion is therefore broad-based across the business.

【Profit and Loss】Operating Income was ¥49.5B (¥9.7B in the previous year, +410.5%), and the Operating Income margin improved to 10.1%, up +7.6pt from 2.5% in the previous year. The gross margin improved to 40.6% (36.5% in the previous year, +4.1pt), while the SG&A ratio improved to 30.5% (34.0% in the previous year, -3.5pt). In addition to the effect of higher revenue, improvements in the cost structure contributed to the expansion of the profit margin. Ordinary Income was ¥53.1B (+230.5%), while Net Income was ¥30.3B (versus a ¥28.3B loss in the same period of the previous year). The previous year included a one-time factor involving the recognition of an extraordinary loss of ¥40.5B (including business restructuring costs), whereas the extraordinary loss in the current period was minimal at ¥0.8B. This reversal also contributed to the return to profitability. Meanwhile, the effective tax rate was high at 42.1%, compressing Net Income relative to Ordinary Income. Overall, the Company recorded higher revenue and higher profit.

Segment Analysis

All five segments recorded increases in both revenue and profit. Industrial Processes generated revenue of ¥205.5B (+29.9%), Operating Income of ¥28.7B (+779.4%), and a profit margin of 14.0%, making it the largest contributor to the improvement in the Company-wide profit margin. Photonics Solutions generated revenue of ¥30.0B (+29.1%), Operating Income of ¥4.8B (+109.3%), and the highest margin among all segments at 15.8%. Life Sciences generated revenue of ¥21.4B (+34.2%), Operating Income of ¥2.3B (+98.2%), and a profit margin of 10.6%. Visual Imaging generated revenue of ¥230.2B (+25.8%) and accounted for approximately 47% of total Company revenue, making it the largest segment. However, its Operating Income was ¥13.8B (+290.9%) and its profit margin was 6.0%, the lowest among the major segments. Although profitability continues to improve, a gap remains relative to the other segments.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 10.1% (2.5% in the previous year), the gross margin improved to 40.6% (36.5% in the previous year), and the Net Income margin improved to 6.2% (-7.4% in the previous year). 【Cash Flow Quality】Against Ordinary Income of ¥53.1B, Net Income was ¥30.3B, resulting in a divergence rate of -42.9%, primarily due to the high effective tax rate of 42.1%. Non-operating income was ¥7.1B, mainly comprising interest income of ¥3.3B and dividend income of ¥2.0B, while non-operating expenses were ¥3.5B (including interest expense of ¥2.7B), resulting in a net positive of +¥3.6B with a high degree of recurrence. Meanwhile, Comprehensive Income was ¥322.1B, substantially exceeding Net Income, primarily due to a +¥273.4B valuation difference on securities. 【Investment Efficiency】EPS was ¥38.11 (¥-32.06 in the previous year), and ROE was 1.4% (quarterly result). Given total assets of ¥3738.3B, the current level of profit remains small, making improvement in asset efficiency a future challenge. 【Financial Soundness】The Equity Ratio was 59.8% (59.9% in the previous year), remaining high and virtually flat. Current assets were ¥2119.2B against current liabilities of ¥840.3B, resulting in a current ratio of approximately 252%. With cash and deposits of ¥720.3B, the Company maintains ample liquidity and substantial short-term financial flexibility.

Cash Flow Analysis

Cash and deposits were ¥720.3B, down -4.9% (-¥37.2B) from the end of the previous fiscal year. The primary factors are considered to be the deployment of funds associated with a substantial increase in investment securities (¥775.0B, up +98.5% YoY, or +¥384.7B), as well as funding requirements associated with the reduction of long-term borrowings (¥357.8B, down -10.0% YoY). Meanwhile, while Revenue increased +27.7%, accounts receivable increased only +7.0% (¥428.1B), and inventories increased only +0.8% (¥367.7B), indicating that the pace of working capital growth was significantly below revenue growth. This suggests that the risk of funds being tied up in support of revenue expansion is limited. Together with the strengthening of cash-generation capacity through improved profitability (Net Income of ¥30.3B versus a ¥28.3B loss in the previous year), capital efficiency can instead be assessed as trending toward improvement.

Earnings Quality

The extraordinary loss in the current period was minimal at ¥0.8B (including a ¥0.5B loss on disposal of fixed assets). The reversal from the ¥40.5B extraordinary loss recorded in the same period of the previous year (including business restructuring costs) was a temporary factor contributing to the return to profitability. Non-operating income of ¥7.1B mainly comprised dividend income of ¥2.0B and interest income of ¥3.3B, which have a high degree of recurrence, and exceeded non-operating expenses of ¥3.5B (including interest expense of ¥2.7B and foreign exchange loss of ¥0.5B), resulting in a net positive. The divergence of -42.9% between Ordinary Income of ¥53.1B and Net Income of ¥30.3B was primarily attributable to the high effective tax rate of 42.1%, rather than the impact of extraordinary income and losses. Comprehensive Income of ¥322.1B substantially exceeded Net Income, primarily due to the non-recurring and non-cash factor of a +¥273.4B valuation difference on securities. Accordingly, Net Income and Operating Income should be given greater weight when assessing the profitability of the core business.

Earnings Forecast and Guidance

The Q1 progress rates against the full-year plan (Revenue of ¥2100.0B, Operating Income of ¥140.0B, Ordinary Income of ¥140.0B, and EPS of ¥132.27) were 23.3% for Revenue, 35.3% for Operating Income, 37.9% for Ordinary Income, and 28.8% for Net Income (¥30.3B against the plan of ¥105B). Compared with the benchmark of 25% for quarterly progress, Revenue was broadly tracking on a linear basis, while Operating Income and Ordinary Income were progressing ahead of schedule, suggesting that improvements in the gross margin and SG&A efficiency are contributing ahead of other factors. Neither the earnings forecast nor the dividend forecast was revised, and management is maintaining its initial plan at this point.

Shareholder Returns

The full-year dividend forecast remains unchanged at ¥70/share, the same as ¥70/share in the previous fiscal year, and there has been no revision to the dividend forecast. Based on the Company’s EPS forecast of ¥132.27, the forecast Payout Ratio is 52.9% (¥70 ÷ ¥132.27). Given the Company’s ample cash and deposits of ¥720.3B, concerns regarding dividend sustainability are considered limited. No data on share buybacks has been disclosed; therefore, the above figure is presented as the Payout Ratio based solely on dividends.

Risk Factors

1. Persistently high effective tax rate: The effective tax rate for the current period was 42.1% (income taxes of ¥22.1B ÷ profit before tax of ¥52.3B), and was the primary factor limiting Net Income to ¥30.3B against Ordinary Income of ¥53.1B. Since the previous year recorded a pretax loss, a simple comparison is difficult; however, the degree to which the tax burden normalizes will influence the trajectory of the Net Income margin.

2. Risk of fluctuations in securities markets: Investment securities amounted to ¥775.0B (20.7% of total assets), up +98.5% YoY, while the increase in the valuation difference (+¥273.4B) substantially boosted Comprehensive Income to ¥322.1B. If market conditions reverse, volatility in Comprehensive Income and shareholders’ equity could increase.

3. Profitability disparity among segments: Visual Imaging’s Operating Income margin was 6.0%, the lowest among the major segments, with a substantial gap versus Industrial Processes (14.0%) and Photonics Solutions (15.8%). The improvement in the Company-wide profit margin is relatively dependent on specific segments.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Income margin exceeds the industry median, while the Net Income margin falls below the median due to the impact of the high effective tax rate.

Growth and Capital Efficiency

The Revenue growth rate substantially exceeds the industry median, placing the Company among the high-growth group within the industry.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. The backdrop to the substantial +410.5% increase in Operating Income includes the reversal of the ¥40.5B extraordinary loss recorded in the same period of the previous year (including business restructuring costs); the extraordinary loss in the current period was minimal at ¥0.8B. The unusual nature of the comparison base should be considered when interpreting the rate of profit growth.

2. The gross margin improved by +4.1pt and the SG&A ratio declined by -3.5pt simultaneously, improving the Operating Income margin from 2.5% to 10.1%. This indicates changes in the cost structure in addition to the effect of higher revenue.

3. Full-year progress rates for Operating Income and Ordinary Income were 35.3% and 37.9%, respectively, ahead of the 23.3% progress rate for Revenue, indicating that profit growth is leading. Meanwhile, the high effective tax rate of 42.1%, which is restraining Net Income growth, will be a key monitoring point throughout the full year.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥2,434–¥2,574 at ±1% for the cost of equity, and ¥2,492–¥2,509 at ±0.1 for ω.

Notes:

• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference relative to the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee the future share price)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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, where necessary, after consulting with a professional advisor.

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AI Financial Analysis

Executive Summary

Ushio Electric delivered a strong FY2027 Q1 earnings recovery, led by sharp operating-margin expansion and a turnaround in its IndustrialProcess business. Revenue rose 27.7% year on year to JPY48.99bn. Operating income increased 410.5% to JPY4.95bn, lifting the operating margin to 10.1% from 2.5% a year earlier, a 760bp expansion. Gross profit rose 42.0% to JPY19.89bn and the gross margin improved 410bp to 40.6%, indicating that the earnings recovery was not solely a fixed-cost absorption effect. SG&A increased 14.6% to JPY14.95bn, materially below revenue growth, supporting positive operating leverage. Ordinary income increased 230.5% to JPY5.31bn, while profit attributable to owners recovered to JPY3.03bn from a JPY2.83bn loss in the prior-year quarter. The net margin was 6.2%, compared with a negative margin a year earlier. The current-quarter annualized ROE was 5.4%, still below the conventional 8% threshold despite the earnings rebound. IndustrialProcess was the principal earnings driver, generating JPY2.87bn of segment profit, or approximately 58% of consolidated operating income. VisualImaging remained the largest segment by revenue at JPY23.02bn, but its 6.0% segment margin trailed IndustrialProcess's 14.0% margin. The earnings improvement was operationally broad based, with all four reported operating segments recording higher revenue and profit. Non-operating income included JPY0.33bn of interest income and JPY0.20bn of dividend income, more than offsetting the JPY0.27bn interest expense. Profit before tax exceeded operating income by JPY0.29bn, so below-the-line items were supportive rather than a major source of earnings. However, the effective tax rate was elevated at 42.1%, reducing the tax burden factor to 0.579. Comprehensive income of JPY32.21bn substantially exceeded net income, principally reflecting a JPY27.34bn valuation gain on securities in OCI. The balance sheet remains liquid, with JPY72.03bn of cash and a 252.2% current ratio. Investment securities nearly doubled year on year to JPY77.50bn and account for 20.7% of total assets, increasing exposure to market-value movements. Full-year guidance was unchanged; Q1 revenue progress was 23.3%, slightly below the standard 25% pace, while operating-income progress was 35.3% and net-income progress was 28.8%, ahead of typical first-quarter seasonality. The principal near-term issues are whether the high IndustrialProcess margin can be maintained, whether long working-capital days normalize, and whether the sizeable securities portfolio introduces greater volatility into equity and comprehensive income.

Profitability Analysis

The reported annualized DuPont ROE of 5.4% is decomposed into a 6.2% net profit margin, 0.524x asset turnover, and 1.67x financial leverage. The primary improvement versus the loss-making prior-year quarter was margin recovery rather than financial leverage: operating margin expanded 760bp to 10.1%, while gross margin rose 410bp to 40.6%. Revenue growth of 27.7% exceeded SG&A growth of 14.6%, demonstrating favorable operating leverage; SG&A fell to 30.5% of revenue from 34.0% a year earlier. The IndustrialProcess segment was the core business by operating-income contribution, with revenue of JPY20.55bn (+29.9% YoY), segment profit of JPY2.87bn (+779.4%), and a 14.0% margin versus 2.1% a year earlier. VisualImaging revenue increased 25.8% to JPY23.02bn and segment profit rose 291.0% to JPY1.38bn; its margin improved to 6.0% from 1.9%. LifeScience revenue grew 34.3% to JPY2.14bn and segment profit increased 98.2% to JPY0.23bn, with a margin of 10.6% versus 7.2%. PhotonicsSolution revenue rose 29.1% to JPY3.00bn and segment profit increased 109.3% to JPY0.48bn; its 15.8% margin was the highest among reported segments. The magnitude of IndustrialProcess margin recovery is the most important determinant of consolidated earnings quality and sustainability. The 5-factor decomposition shows an EBIT margin of 10.1%, an interest burden of 1.058, and a tax burden of 0.579. Interest income exceeded interest expense, explaining the interest burden above 1.0 and indicating that financing costs are not currently constraining profitability. Conversely, the 42.1% effective tax rate remains a material drag on conversion of pretax income into net income. The operating result appears primarily recurring because extraordinary losses were limited to JPY0.08bn, including JPY0.05bn of fixed-asset disposal losses, equivalent to roughly 2.5% of net income. Goodwill is only 3.1% of equity and 1.8% of assets, limiting the likelihood that JGAAP goodwill amortization is a major distortion to profitability.

Growth Assessment

Q1 sales growth of 27.7% was broad based across IndustrialProcess, VisualImaging, LifeScience, and PhotonicsSolution. IndustrialProcess added JPY4.73bn of revenue year on year and contributed approximately 59% of the aggregate segment-profit increase, making it the decisive engine of the recovery. VisualImaging added JPY4.72bn of revenue and remained the largest revenue platform, although its profitability recovery was less pronounced than that of IndustrialProcess. The group’s gross-margin improvement to 40.6% indicates improved product mix, pricing, production efficiency, or a combination of these factors. The lower SG&A-to-sales ratio also indicates that revenue growth was converted efficiently into operating earnings. Full-year company guidance calls for revenue of JPY210.0bn (+17.2% YoY), operating income of JPY14.0bn (+17.1%), ordinary income of JPY14.0bn (+4.9%), and profit attributable to owners of JPY10.5bn. Q1 revenue represents 23.3% of the annual target, only 1.7 percentage points below the standard 25% first-quarter pace. Operating-income progress of 35.3% is 10.3 percentage points above the 25% reference pace, while net-income progress of 28.8% is 3.8 percentage points above it. The stronger-than-standard profit progress suggests that management’s full-year outlook retains a degree of conservatism or anticipates lower margins in subsequent quarters. The key test will be whether IndustrialProcess can preserve a double-digit segment margin and whether VisualImaging can close its margin gap. Warranty provisions of JPY3.37bn equal 6.9% of quarterly revenue, above the 3% warning benchmark, indicating that quality-related costs and product-support requirements should be monitored as potential constraints on margin durability. Finished goods were JPY36.77bn, and the reported inventory-day alerts of 115 days and 270 days both indicate a high inventory commitment relative to manufacturing benchmarks. Elevated inventory can support delivery readiness, but it also heightens the risk of slower inventory conversion, write-downs, and reduced future production flexibility if demand moderates.

Financial Health

Liquidity is strong: current assets of JPY211.93bn exceeded current liabilities of JPY84.03bn, producing working capital of JPY127.89bn and a 252.2% current ratio. The 208.4% quick ratio confirms that liquidity remains robust even excluding inventories. Cash and deposits totaled JPY72.03bn, equivalent to 48.67x short-term loans of JPY1.48bn. Interest-bearing debt was JPY37.26bn, producing a conservative debt-to-equity ratio of 0.67x and debt-to-capital ratio of 14.3%. Interest coverage was a strong 18.52x, indicating ample capacity to service current interest costs. Long-term loans were JPY35.78bn, while the reported current portion of long-term loans was JPY30.73bn; the large current asset base and cash balance substantially mitigate refinancing and maturity-mismatch risk. Liabilities represented 40.2% of total assets, while owners’ equity was JPY223.44bn. Investment securities increased JPY38.47bn, or 98.5% year on year, to JPY77.50bn. This portfolio increase coincided with a JPY27.34bn valuation difference on securities recorded in OCI and a rise in deferred tax liabilities to JPY20.00bn from JPY6.38bn. Accordingly, a meaningful part of the JPY25.11bn year-on-year increase in total equity was driven by accumulated OCI rather than retained operating profit. Investment securities now represent 20.7% of assets, creating meaningful exposure of book value and comprehensive income to market-price movements. Accounts payable increased 25.4% to JPY17.63bn, broadly consistent with the higher operating scale and not, by itself, a sign of stressed supplier funding. Goodwill of JPY6.88bn and intangible assets of JPY10.83bn are modest relative to equity and assets, keeping acquisition-related impairment risk contained. Asset retirement obligations of JPY0.37bn are immaterial at approximately 0.2% of total liabilities.

Notable B/S Changes

Investment securities: +JPY38.47bn (+98.5%) to JPY77.50bn - now 20.7% of total assets; the increase coincided with a JPY27.34bn securities valuation gain in OCI, increasing sensitivity of equity and comprehensive income to market prices. Accounts payable: +JPY3.57bn (+25.4%) to JPY17.63bn - broadly reflects the larger operating scale and provides additional supplier financing, but should be assessed alongside the extended working-capital cycle. Total equity: +JPY25.11bn (+12.7%) to JPY223.45bn - primarily supported by accumulated OCI, including securities valuation gains, rather than solely retained earnings growth. Deferred tax liabilities: +JPY13.62bn (+213.7%) to JPY20.00bn - consistent with unrealized valuation gains on securities and indicates that part of OCI-related equity growth carries future tax obligations.

Cash Flow Quality

The quarter’s operating cash flow and investing cash flow figures are not reported in the provided financial data, so cash conversion, free cash flow, and OCF-to-net-income cannot be assessed. Working-capital indicators nevertheless warrant attention. The reported receivable-days alert of 80 days is above the 60-day warning level, indicating relatively slow cash collection compared with manufacturing benchmarks. The reported inventory-day alerts of 115 days and 270 days are both above their respective warning thresholds, indicating substantial inventory tied up in the production and sales cycle. The reported annualized cash conversion cycle of 294 days is well above the 120-day warning level, implying a long period between cash outlay and customer cash collection. This combination raises the risk that accounting earnings may not convert into operating cash flow at the same pace, particularly if demand slows or customer collections lengthen. Accounts receivable increased 7.6% year on year to JPY42.81bn, slower than revenue growth, which is a constructive relative trend, but the reported DSO remains elevated. Inventories were broadly flat year on year at JPY36.77bn despite the substantial increase in sales, which may indicate improved inventory utilization; however, the high reported inventory-day metrics remain the more important risk signal. Accounts payable increased 25.4%, broadly tracking the increase in procurement and operating activity. There is no basis in the reported figures to quantify free-cash-flow coverage of dividends or capital expenditure commitments.

Dividend Sustainability

The full-year dividend forecast is JPY70 per share, unchanged from the prior-year indicated dividend level. Based on forecast EPS of JPY132.27, the prospective dividend payout ratio is approximately 52.9%, below the 60% sustainability benchmark. The dividend is therefore covered by forecast earnings on a full-year basis. The Q1 EPS of JPY38.11 represents 28.8% of forecast annual EPS, consistent with the company’s first-quarter net-income progress against full-year guidance. Balance-sheet liquidity provides an additional buffer, with JPY72.03bn of cash and deposits and conservative debt-to-capital of 14.3%. However, the absence of reported quarterly operating and free cash flow prevents an assessment of cash dividend coverage after capital expenditure and working-capital investment. The long reported cash conversion cycle and high inventory days make cash realization the key factor to monitor for dividend durability. No share buyback amount is reported; therefore, total return ratio cannot be calculated.

Risk Assessment

Business risks include Demand and mix risk: IndustrialProcess generated approximately 58% of consolidated operating income in Q1, so a reversal of its 14.0% segment margin would have a disproportionate impact on group earnings., VisualImaging profitability risk: the segment is the largest by revenue at JPY23.02bn but delivered a 6.0% margin, well below IndustrialProcess and PhotonicsSolution, leaving consolidated margin sensitive to product mix., Manufacturing inventory risk: reported inventory-day alerts of 115 days and 270 days indicate a risk of excess stock, obsolescence, inventory write-downs, and lower production flexibility if demand conditions weaken., Product quality and warranty risk: warranty provisions equal 6.9% of revenue, above the 3% warning benchmark, suggesting elevated potential exposure to repair, replacement, and customer-support costs., Industry-specific electronics/photonics risk: demand is exposed to capital-spending cycles, customer technology transitions, component availability, and price competition across industrial, visual-imaging, life-science, and photonics applications., Foreign-exchange risk: the quarter included JPY0.51bn of FX losses, and export-oriented manufacturing operations can experience margin and demand volatility as exchange rates move..

Financial risks include Working-capital funding risk: reported DSO of 80 days, long inventory days, and a 294-day cash conversion cycle could delay conversion of accounting profit into cash., Market-value risk in securities: investment securities rose 98.5% to JPY77.50bn, representing 20.7% of assets; fluctuations can materially affect OCI, deferred taxes, and equity., Tax-conversion risk: the effective tax rate of 42.1% reduced the tax burden to 0.579, meaning a relatively low proportion of pretax profit reached net income., Refinancing monitoring point: current portions of long-term loans are sizable, although the company’s cash balance, current ratio, and interest coverage substantially reduce near-term liquidity risk..

Key concerns include Highest priority: sustainment of the Q1 operating-margin recovery, especially in IndustrialProcess, because operating-income progress of 35.3% is already ahead of the full-year seasonal benchmark., High priority: collection and inventory normalization, as the DSO, DIO, and cash conversion cycle alerts point to potential cash-flow pressure despite improving earnings., High priority: warranty provision intensity of 6.9%, which is elevated for a manufacturing company and could limit future gross-margin improvement., Medium priority: securities valuation volatility, as JPY27.34bn of valuation gains on securities drove most of the JPY29.18bn OCI gain in the quarter., Medium priority: the elevated tax rate, which may continue to constrain net-profit conversion if it does not normalize..

Investment Implications

Key takeaways include Revenue grew 27.7% and operating income rose 410.5%, producing a 760bp operating-margin expansion to 10.1%., IndustrialProcess is the core earnings business, with JPY2.87bn of segment profit and a 14.0% margin., All major operating segments improved year on year, supporting the breadth of the earnings recovery., The balance sheet is liquid and conservatively financed, with a 252.2% current ratio, 18.52x interest coverage, and 14.3% debt-to-capital., Working-capital efficiency and warranty intensity are the primary operating-quality issues., The securities portfolio is material and makes equity and comprehensive income sensitive to market valuations..

Metrics to watch include IndustrialProcess segment revenue growth and segment margin versus the Q1 14.0% level, VisualImaging margin recovery from the Q1 6.0% level, Consolidated gross margin and SG&A-to-sales ratio, Receivable days, inventory days, and cash conversion cycle, Warranty provisions as a percentage of revenue, Operating cash flow and free cash flow relative to net income and dividends, Investment securities valuation changes, OCI, and deferred-tax-liability movements, Progress toward full-year revenue, operating-income, and net-income guidance.

Regarding relative positioning, At a 10.1% operating margin, Ushio is within the broad 8-15% good profitability range, but its 5.4% annualized ROE remains below the 8% level typically associated with stronger capital efficiency. Its liquidity and leverage profile are stronger than those of a heavily debt-funded manufacturer, while its working-capital cycle and 6.9% warranty ratio are weaker than standard manufacturing efficiency and quality-cost benchmarks.