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Chicago Bridge & Iron Company (NYSE:CBI)
Operating Income
$1,091 Mil (TTM As of Jun. 2015)

Chicago Bridge & Iron Company's operating income for the three months ended in Jun. 2015 was $284 Mil. Its operating income for the trailing twelve months (TTM) ended in Jun. 2015 was $1,091 Mil.

Operating margin is calculated as operating income divided by its revenue. Chicago Bridge & Iron Company's operating income for the three months ended in Jun. 2015 was $284 Mil. Chicago Bridge & Iron Company's revenue for the three months ended in Jun. 2015 was $3,207 Mil. Therefore, Chicago Bridge & Iron Company's operating margin for the quarter that ended in Jun. 2015 was 8.86%.

Warning Sign:

Chicago Bridge & Iron Company operating margin has been in 5-year decline. The average rate of decline per year is -1.1%.

Chicago Bridge & Iron Company's 3-Year average Growth Rate for operating margin was -1.10% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. Chicago Bridge & Iron Company's annualized return on capital for the quarter that ended in Jun. 2015 was 16.51%. Chicago Bridge & Iron Company's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Jun. 2015 was 153.50%.


Definition

Operating income, 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.

Chicago Bridge & Iron Company's Operating Income for the fiscal year that ended in Dec. 2014 is calculated as

Operating Income(A: Dec. 2014 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=12974.93-11508.521-405.208
-Research & Development-Depreciation, Depletion & Amortization-Others
-0-181.398--102.805
=983

Chicago Bridge & Iron Company's Operating Income for the quarter that ended in Jun. 2015 is calculated as

Operating Income(Q: Jun. 2015 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=3207.113-2823.99-85.153
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-42.39--28.527
=284

Operating Income(Q: Jun. 2015 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=328.681-42.39-2.184
=284

Chicago Bridge & Iron Company Operating Income for the trailing twelve months (TTM) ended in Jun. 2015 was 286.062 (Sep. 2014 ) + 273.852 (Dec. 2014 ) + 246.798 (Mar. 2015 ) + 284.107 (Jun. 2015 ) = $1,091 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.

Chicago Bridge & Iron Company's annualized Return on Capital (ROC) for the quarter that ended in Jun. 2015 is calculated as:

Return on Capital (ROC)(Q: Jun. 2015 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (Q: Mar. 2015 ) + Invested Capital (Q: Jun. 2015 ))/2)
=1136.428 * ( 1 - 29.9% )/( (4762.636 + 4888.237)/2)
=796.636028/4825.4365
=16.51 %

where

Invested Capital(Q: Mar. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=1525.128 + 749.286 + 2835.239 - 347.017
=4762.636

Invested Capital(Q: Jun. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=1486.085 + 727.836 + 3029.404 - 355.088
=4888.237

Note: The Operating Income data used here is four times the quarterly (Jun. 2015) operating income data.

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

Chicago Bridge & Iron Company's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Jun. 2015 is calculated as:

ROC (Joel Greenblatt’s)(Q: Jun. 2015 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=EBIT/Average of (Net PPE+Net Working Capital)
     Q: Mar. 2015  Q: Jun. 2015
=EBIT/( ( (Net PPE + Net Working Capital) + (Net PPE + Net Working Capital) )/2 )
=1145.164/( ( (750.563 + max(-287.056, 0)) + (741.469 + max(-125.322, 0)) )/2 )
=1145.164/( ( 750.563 + 741.469 )/2 )
=1145.164/746.016
=153.50 %

where Working Capital is:

Working Capital(Q: Mar. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(1347.742 + 283.352 + 1920.099) - (1837.568 + 5.612 + 1995.069)
=-287.056

Working Capital(Q: Jun. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(1326.858 + 292.244 + 2503.295) - (2053.802 + 4.333 + 2189.584)
=-125.322

When net working capital is negative, 0 is used.

Note: The Earnings Before Interest and Taxes (EBIT) data used here is four times the quarterly (Jun. 2015) EBIT data.

3. Operating Income is also linked to Operating Margin:

Chicago Bridge & Iron Company's Operating Margin for the quarter that ended in Jun. 2015 is calculated as:

Operating Margin=Operating Income (Q: Jun. 2015 )/Total Revenue (Q: Jun. 2015 )
=284.107/3207.113
=8.86 %

* 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, EBIT


Historical Data

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

Chicago Bridge & Iron Company Annual Data

Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14
Operating Income 5014620635314303355456685983

Chicago Bridge & Iron Company Quarterly Data

Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14Mar15Jun15
Operating Income 87185202210162260286274247284
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