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Check Point Software Technologies Ltd (NAS:CHKP)
Operating Income
$823 Mil (TTM As of Jun. 2015)

Check Point Software Technologies Ltd's operating income for the three months ended in Jun. 2015 was $199 Mil. Its operating income for the trailing twelve months (TTM) ended in Jun. 2015 was $823 Mil.

Operating margin is calculated as operating income divided by its revenue. Check Point Software Technologies Ltd's operating income for the three months ended in Jun. 2015 was $199 Mil. Check Point Software Technologies Ltd's revenue for the three months ended in Jun. 2015 was $395 Mil. Therefore, Check Point Software Technologies Ltd's operating margin for the quarter that ended in Jun. 2015 was 50.36%.

Good Sign:

Check Point Software Technologies Ltd operating margin is expanding. Margin expansion is usually a good sign.

Check Point Software Technologies Ltd's 3-Year average Growth Rate for operating margin was 3.80% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. Check Point Software Technologies Ltd's annualized return on capital for the quarter that ended in Jun. 2015 was 26.73%. Check Point Software Technologies Ltd's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Jun. 2015 was 1,882.22%.


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.

Check Point Software Technologies Ltd'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
=1495.816-176.541-384.921
-Research & Development-Depreciation, Depletion & Amortization-Others
-133.3-11.284--11.284
=801

Check Point Software Technologies Ltd'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
=395.334-45.603-114.423
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-36.23-3.539--3.539
=199

Operating Income(Q: Jun. 2015 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=202.617-3.539-0
=199

Check Point Software Technologies Ltd Operating Income for the trailing twelve months (TTM) ended in Jun. 2015 was 197.381 (Sep. 2014 ) + 229.254 (Dec. 2014 ) + 197.015 (Mar. 2015 ) + 199.078 (Jun. 2015 ) = $823 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.

Check Point Software Technologies Ltd'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)
=796.312 * ( 1 - 21.68% )/( (2339.832 + 2326.924)/2)
=623.6715584/2333.378
=26.73 %

where

Invested Capital(Q: Mar. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=0 + 0 + 3618.185 - 1278.353
=2339.832

Invested Capital(Q: Jun. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=0 + 0 + 3554.028 - 1227.104
=2326.924

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:

Check Point Software Technologies Ltd'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 )
=796.312/( ( (41.951 + max(-606.314, 0)) + (42.663 + max(-589.566, 0)) )/2 )
=796.312/( ( 41.951 + 42.663 )/2 )
=796.312/42.307
=1,882.22 %

where Working Capital is:

Working Capital(Q: Mar. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(222.092 + 0 + 75.823) - (266.743 + 637.486 + 1.13686837722E-13)
=-606.314

Working Capital(Q: Jun. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(243.223 + 0 + 78.341) - (276.422 + 634.708 + 0)
=-589.566

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:

Check Point Software Technologies Ltd'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 )
=199.078/395.334
=50.36 %

* 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.

Check Point Software Technologies Ltd Annual Data

Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14
Operating Income 332275280357415535642747761801

Check Point Software Technologies Ltd Quarterly Data

Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14Mar15Jun15
Operating Income 177183186214184190197229197199
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