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Dollar Tree Stores Inc (NAS:DLTR)
Operating Income
$989 Mil (TTM As of Jul. 2014)

Dollar Tree Stores Inc's operating income for the three months ended in Jul. 2014 was $205 Mil. Its operating income for the trailing twelve months (TTM) ended in Jul. 2014 was $989 Mil.

Operating margin is calculated as operating income divided by its revenue. Dollar Tree Stores Inc's operating income for the three months ended in Jul. 2014 was $205 Mil. Dollar Tree Stores Inc's revenue for the three months ended in Jul. 2014 was $2,031 Mil. Therefore, Dollar Tree Stores Inc's operating margin for the quarter that ended in Jul. 2014 was 10.09%.

Good Sign:

Dollar Tree Stores Inc operating margin is expanding. Margin expansion is usually a good sign.

Dollar Tree Stores Inc's 3-Year average Growth Rate for operating margin was 9.20% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. Dollar Tree Stores Inc's annualized return on capital for the quarter that ended in Jul. 2014 was 16.60%. Dollar Tree Stores Inc's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Jul. 2014 was 52.37%.

Operating income is also linked to Joel Greenblatt’s definition of earnings yield. Dollar Tree Stores Inc's earnings yield (Joel Greenblatt’s) for the quarter that ended in Jul. 2014 was 8.41%.


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.

Dollar Tree Stores Inc's Operating Income for the fiscal year that ended in Jan. 2014 is calculated as

Operating Income (EBIT)(A: Jan. 2014 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=7840.3-5050.5-1819.5
-Research & Development-Depreciation, Depletion & Amortization-Others
-0-190.5--190.5
=970

Dollar Tree Stores Inc's Operating Income for the quarter that ended in Jul. 2014 is calculated as

Operating Income (EBIT)(Q: Jul. 2014 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=2031.1-1337-489.1
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-49.9--49.9
=205

Operating Income (EBIT)(Q: Jul. 2014 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=254.9-49.9-0
=205

Dollar Tree Stores Inc Operating Income for the trailing twelve months (TTM) ended in Jul. 2014 was 204.3 (Oct. 2013 ) + 348.2 (Jan. 2014 ) + 231.9 (Apr. 2014 ) + 205 (Jul. 2014 ) = $989 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.

Dollar Tree Stores Inc's annualized Return on Capital (ROC) for the quarter that ended in Jul. 2014 is calculated as:

Return on Capital (ROC)
=(EBIT - Adjusted Taxes)/(Book Value of Debt + Book Value of Equity - Cash)
=Net Income/(Total Current Assets + Property, Plant and Equipment + Other Current Assets)
=486/(1663.2 + 1153.4 + 111.5)
=16.60 %

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

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

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

Return on Capital(Joel Greenblatt’s)
=EBIT/(Net fixed Assets + Net Working Capital)
=Operating Income/(Net Property, Plant and Equipment+Net Working Capital)
=820/(1153.4 + max(412.5, 0))
=52.37 %

where Working Capital is:

Working Capital
=(Accounts Receivable + Inventory + Other Current Assets) - (Accounts Payable + Other Current Liabilities)
=(0 + 1084 + 111.5) - (526.9 + 256.1)
=412.5

When net working capital is negative, 0 is used.

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

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

Dollar Tree Stores Inc's Earnings Yield (Joel Greenblatt’s) for the quarter that ended in Jul. 2014 is calculated as:

Earnings Yield (Joel Greenblatt’s)=Operating Income (TTM)/Enterprise Value (Q: Jul. 2014 )
=989.4/11760.496
=8.41 %

4. EBIT is also linked to Operating Margin:

Dollar Tree Stores Inc's Operating Margin for the quarter that ended in Jul. 2014 is calculated as:

Operating Margin=Operating Income (Q: Jul. 2014 )/Total Revenue (Q: Jul. 2014 )
=205/2031.1
=10.09 %

* 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.

Dollar Tree Stores Inc Annual Data

Jan05Jan06Jan07Jan08Jan09Jan10Jan11Jan12Jan13Jan14
Operating Income 294283311330366513630782920970

Dollar Tree Stores Inc Quarterly Data

Apr12Jul12Oct12Jan13Apr13Jul13Oct13Jan14Apr14Jul14
Operating Income 188184184364217201204348232205
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