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BHP Billiton Ltd (NYSE:BHP)
Operating Income
$19,225 Mil (TTM As of Dec. 2013)

BHP Billiton Ltd's operating income for the six months ended in Dec. 2013 was $12,933 Mil. Its operating income for the trailing twelve months (TTM) ended in Dec. 2013 was $19,225 Mil.

Operating margin is calculated as operating income divided by its revenue. BHP Billiton Ltd's operating income for the six months ended in Dec. 2013 was $12,933 Mil. BHP Billiton Ltd's revenue for the six months ended in Dec. 2013 was $33,948 Mil. Therefore, BHP Billiton Ltd's operating margin for the quarter that ended in Dec. 2013 was 38.10%.

Warning Sign:

BHP Billiton Ltd operating margin has been in 5-year decline. The average rate of decline per year is -2.5%.

BHP Billiton Ltd's 3-Year average Growth Rate for operating margin was -2.50% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. BHP Billiton Ltd's annualized return on capital for the quarter that ended in Dec. 2013 was 12.43%. BHP Billiton Ltd's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Dec. 2013 was 24.57%.

Operating income is also linked to Joel Greenblatt’s definition of earnings yield. BHP Billiton Ltd's earnings yield (Joel Greenblatt’s) for the quarter that ended in Dec. 2013 was 8.96%.


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.

BHP Billiton Ltd's Operating Income for the fiscal year that ended in Jun. 2013 is calculated as

Operating Income (EBIT)(A: Jun. 2013 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=65968-25129-10865
-Research & Development-Depreciation, Depletion & Amortization-Others
-64-6945-3740
=19,225

BHP Billiton Ltd's Operating Income for the quarter that ended in Dec. 2013 is calculated as

Operating Income (EBIT)(Q: Dec. 2013 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=33948-0-0
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-3993-17022
=12,933

Operating Income (EBIT)(Q: Dec. 2013 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=16667-3993--259
=12,933

For company reported semi-annually, GuruFocus uses latest annual data as the TTM data. BHP Billiton Ltd Operating Income for the trailing twelve months (TTM) ended in Dec. 2013 was $19,225 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.

BHP Billiton Ltd's annualized Return on Capital (ROC) for the quarter that ended in Dec. 2013 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)
=16214/(24598 + 105254 + 595)
=12.43 %

Note: The Net Income data used here is two times the semi-annual (Dec. 2013) net income data.

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

BHP Billiton Ltd's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Dec. 2013 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)
=25866/(105254 + max(-261, 0))
=24.57 %

where Working Capital is:

Working Capital
=(Accounts Receivable + Inventory + Other Current Assets) - (Accounts Payable + Other Current Liabilities)
=(6987 + 5917 + 595) - (11330 + 2430)
=-261

When net working capital is negative, 0 is used.

Note: The Operating Income data used here is two times the semi-annual (Dec. 2013) operating income data.

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

BHP Billiton Ltd's Earnings Yield (Joel Greenblatt’s) for the quarter that ended in Dec. 2013 is calculated as:

Earnings Yield (Joel Greenblatt’s)=Operating Income (TTM)/Enterprise Value (Q: Dec. 2013 )
=19225/214647.7
=8.96 %

4. EBIT is also linked to Operating Margin:

BHP Billiton Ltd's Operating Margin for the quarter that ended in Dec. 2013 is calculated as:

Operating Margin=Operating Income (Q: Dec. 2013 )/Total Revenue (Q: Dec. 2013 )
=12933/33948
=38.10 %

* 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.

BHP Billiton Ltd Annual Data

Jun04Jun05Jun06Jun07Jun08Jun09Jun10Jun11Jun12Jun13
Operating Income 4,0109,27115,71619,72425,58912,16020,03131,81623,75219,225

BHP Billiton Ltd Semi-Annual Data

Jun09Dec09Jun10Dec10Jun11Dec11Jun12Dec12Jun13Dec13
Operating Income 5,2239,12010,91114,51517,30115,8537,8997,97011,25512,933
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