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Aflac Inc (NYSE:AFL)
Operating Income
$4,444 Mil (TTM As of Sep. 2014)

Aflac Inc's operating income for the three months ended in Sep. 2014 was $1,074 Mil. Its operating income for the trailing twelve months (TTM) ended in Sep. 2014 was $4,444 Mil.

Operating margin is calculated as operating income divided by its revenue. Aflac Inc's operating income for the three months ended in Sep. 2014 was $1,074 Mil. Aflac Inc's revenue for the three months ended in Sep. 2014 was $5,736 Mil. Therefore, Aflac Inc's operating margin for the quarter that ended in Sep. 2014 was 18.72%.

Good Sign:

Aflac Inc operating margin is expanding. Margin expansion is usually a good sign.

Aflac Inc's 3-Year average Growth Rate for operating margin was 10.50% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. Aflac Inc's annualized return on capital for the quarter that ended in Sep. 2014 was %. Aflac Inc's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Sep. 2014 was 922.88%.

Operating income is also linked to Joel Greenblatt’s definition of earnings yield. Aflac Inc's earnings yield (Joel Greenblatt’s) for the quarter that ended in Sep. 2014 was 15.74%.


Definition

Operating income, sometimes also called Earnings Before Interest and Taxes (EBIT), is the profit a company earned through operations. All expenses, including cash expenses such as cost of goods sold (COGS), research & development, wages, and non-cash expenses, such as depreciation, depletion and amortization, have been deducted from the sales.

Aflac Inc's Operating Income for the fiscal year that ended in Dec. 2013 is calculated as

Operating Income (EBIT)(A: Dec. 2013 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=23939-0-3750
-Research & Development-Depreciation, Depletion & Amortization-Others
-0-0-15373
=4,816

Aflac Inc's Operating Income for the quarter that ended in Sep. 2014 is calculated as

Operating Income (EBIT)(Q: Sep. 2014 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=5736-0-927
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-0-3735
=1,074

Operating Income (EBIT)(Q: Sep. 2014 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=1151-0-77
=1,074

Aflac Inc Operating Income for the trailing twelve months (TTM) ended in Sep. 2014 was 1028 (Dec. 2013 ) + 1104 (Mar. 2014 ) + 1238 (Jun. 2014 ) + 1074 (Sep. 2014 ) = $4,444 Mil.

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.


Explanation

1. Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition.

Aflac Inc's annualized Return on Capital (ROC) for the quarter that ended in Sep. 2014 is calculated as:

Return on Capital (ROC)(Q: Sep. 2014 )
=(EBIT - Adjusted Taxes)/Average Total Capital
=Net Income/( (Total Capital (Q: Jun. 2014 ) + Total Capital (Q: Sep. 2014 ))/ 2 )
=2824/( (-2982 + -3087)/ 2 )
=2824/-3034.5
= %

where

Total Capital(Q: Jun. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Total Current Assets + Property, Plant and Equipment + Other Current Assets
=0 + 482 + -3464
=-2982

Total Capital(Q: Sep. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Total Current Assets + Property, Plant and Equipment + Other Current Assets
=0 + 449 + -3536
=-3087

Note: The Net Income data used here is four times the quarterly (Sep. 2014) net income data.

2. Joel Greenblatt’s definition of Return on Capital:

Aflac Inc's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Sep. 2014 is calculated as:

ROC (Joel Greenblatt’s)(Q: Sep. 2014 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=Operating Income/Average of (Net PPE+Net Working Capital)
     Q: Jun. 2014  Q: Sep. 2014
=Operating Income/( ( (Net PPE + Net Working Capital) + (Net PPE + Net Working Capital) )/2 )
=4296/( ( (482 + max(-2580, 0)) + (449 + max(-2666, 0)) )/2 )
=4296/( ( 482 + 449 )/2 )
=4296/465.5
=922.88 %

where Working Capital is:

Working Capital(Q: Jun. 2014 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(884 + 0 + -3464) - (7889 + 0 + -7889)
=-2580

Working Capital(Q: Sep. 2014 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(870 + 0 + -3536) - (11494 + 0 + -11494)
=-2666

When net working capital is negative, 0 is used.

Note: The Operating Income data used here is four times the quarterly (Sep. 2014) operating income data.

3. It is also linked to Joel Greenblatt’s definition of Earnings Yield:

Aflac Inc's Earnings Yield (Joel Greenblatt’s) for the quarter that ended in Sep. 2014 is calculated as:

Earnings Yield (Joel Greenblatt’s)=Operating Income (TTM)/Enterprise Value (Q: Sep. 2014 )
=4444/28232.735
=15.74 %

4. EBIT is also linked to Operating Margin:

Aflac Inc's Operating Margin for the quarter that ended in Sep. 2014 is calculated as:

Operating Margin=Operating Income (Q: Sep. 2014 )/Total Revenue (Q: Sep. 2014 )
=1074/5736
=18.72 %

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.


Be Aware

Compared with a company’s EBITDA margin, Operating Margin can be manipulated by adjusting the rate of depreciation, depletion and amortization (DDA).

If a company is facing competition, its Operating Margin may decline. Often the Operating Margin declines well before the company’s revenue or even profit decline. Therefore, Operating Margin is a very important indicator of whether the company is facing problems.

For instance, by 2012, Nokia (NOK)’s problems were well known and its stock had lost more than 90% of its market value since 2007. But Nokia’s Operating Margin had already been in decline since 2002, although its earnings per share were still rising. Investors who paid attention to Operating Margin would have avoided this huge loss. The same can be said for Research-in-Motion (RIMM).

Therefore, Operating Margin is a very important screening filter for GuruFocus. GuruFocus’s Buffett-Munger screener requires that the profit margin is either consistent or expanding. The Model Portfolio of the Buffett-Munger screener has outperformed the market every year since inception in 2009.


Related Terms

Revenue, Cost of Goods Sold, Selling, General, & Admin. Expense, Research & Development, Gross Profit, EBITDA, Depreciation, Depletion and Amortization, Return on Capital, Return on Capital (Joel Greenblatt’s), Earnings Yield, Operating Margin


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Aflac Inc Annual Data

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
Operating Income 1,8302,2492,2832,5261,9142,2353,5852,9924,3024,816

Aflac Inc Quarterly Data

Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14
Operating Income 7411,4808791,3611,3581,0691,0281,1041,2381,074
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