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Brady Corp (NYSE:BRC)
Operating Income
$-108 Mil (TTM As of Apr. 2014)

Brady Corp's operating income for the three months ended in Apr. 2014 was $27 Mil. Its operating income for the trailing twelve months (TTM) ended in Apr. 2014 was $-108 Mil.

Operating margin is calculated as operating income divided by its revenue. Brady Corp's operating income for the three months ended in Apr. 2014 was $27 Mil. Brady Corp's revenue for the three months ended in Apr. 2014 was $310 Mil. Therefore, Brady Corp's operating margin for the quarter that ended in Apr. 2014 was 8.65%.

Brady Corp's 3-Year average Growth Rate for operating margin was 0.00% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. Brady Corp's annualized return on capital for the quarter that ended in Apr. 2014 was 11.91%. Brady Corp's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Apr. 2014 was 29.23%.

Operating income is also linked to Joel Greenblatt’s definition of earnings yield. Brady Corp's earnings yield (Joel Greenblatt’s) for the quarter that ended in Apr. 2014 was -6.88%.


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.

Brady Corp's Operating Income for the fiscal year that ended in Jul. 2013 is calculated as

Operating Income (EBIT)(A: Jul. 2013 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=1152.109-546.029-427.661
-Research & Development-Depreciation, Depletion & Amortization-Others
-33.552-48.725-181.769
=-86

Brady Corp's Operating Income for the quarter that ended in Apr. 2014 is calculated as

Operating Income (EBIT)(Q: Apr. 2014 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=309.577-154.457-116.666
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-8.648-11.44--8.401
=27

Operating Income (EBIT)(Q: Apr. 2014 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=39.079-11.44-0.872
=27

Brady Corp Operating Income for the trailing twelve months (TTM) ended in Apr. 2014 was -181.589 (Jul. 2013 ) + 28.831 (Oct. 2013 ) + 18.346 (Jan. 2014 ) + 26.767 (Apr. 2014 ) = $-108 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.

Brady Corp's annualized Return on Capital (ROC) for the quarter that ended in Apr. 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)
=96.352/(522.482 + 130.227 + 156.201)
=11.91 %

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

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

Brady Corp's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Apr. 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)
=107.068/(130.227 + max(236.116, 0))
=29.23 %

where Working Capital is:

Working Capital
=(Accounts Receivable + Inventory + Other Current Assets) - (Accounts Payable + Other Current Liabilities)
=(178.197 + 109.369 + 156.201) - (151.487 + 56.164)
=236.116

When net working capital is negative, 0 is used.

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

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

Brady Corp's Earnings Yield (Joel Greenblatt’s) for the quarter that ended in Apr. 2014 is calculated as:

Earnings Yield (Joel Greenblatt’s)=Operating Income (TTM)/Enterprise Value (Q: Apr. 2014 )
=-107.645/1565.5175
=-6.88 %

4. EBIT is also linked to Operating Margin:

Brady Corp's Operating Margin for the quarter that ended in Apr. 2014 is calculated as:

Operating Margin=Operating Income (Q: Apr. 2014 )/Total Revenue (Q: Apr. 2014 )
=26.767/309.577
=8.65 %

* 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.

Brady Corp Annual Data

Jul04Jul05Jul06Jul07Jul08Jul09Jul10Jul11Jul12Jul13
Operating Income 7212215717220812012916240-86

Brady Corp Quarterly Data

Jan12Apr12Jul12Oct12Jan13Apr13Jul13Oct13Jan14Apr14
Operating Income -774127442531-182291827
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