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Cintas Corp (NAS:CTAS)
Operating Income
$644 Mil (TTM As of Feb. 2015)

Cintas Corp's operating income for the three months ended in Feb. 2015 was $174 Mil. Its operating income for the trailing twelve months (TTM) ended in Feb. 2015 was $644 Mil.

Operating margin is calculated as operating income divided by its revenue. Cintas Corp's operating income for the three months ended in Feb. 2015 was $174 Mil. Cintas Corp's revenue for the three months ended in Feb. 2015 was $1,109 Mil. Therefore, Cintas Corp's operating margin for the quarter that ended in Feb. 2015 was 15.66%.

Good Sign:

Cintas Corp operating margin is expanding. Margin expansion is usually a good sign.

Cintas Corp's 3-Year average Growth Rate for operating margin was 3.90% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. Cintas Corp's annualized return on capital for the quarter that ended in Feb. 2015 was 15.76%. Cintas Corp's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Feb. 2015 was 48.02%.


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.

Cintas Corp's Operating Income for the fiscal year that ended in May. 2014 is calculated as

Operating Income(A: May. 2014 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=4551.812-2637.426-1302.752
-Research & Development-Depreciation, Depletion & Amortization-Others
-0-168.22--123.596
=567

Cintas Corp's Operating Income for the quarter that ended in Feb. 2015 is calculated as

Operating Income(Q: Feb. 2015 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=1108.847-633.54-301.69
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-45.589--45.589
=174

Operating Income(Q: Feb. 2015 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=219.302-45.589-0.096
=174

Cintas Corp Operating Income for the trailing twelve months (TTM) ended in Feb. 2015 was 125.584 (May. 2014 ) + 163.488 (Aug. 2014 ) + 181.175 (Nov. 2014 ) + 173.617 (Feb. 2015 ) = $644 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.

Cintas Corp's annualized Return on Capital (ROC) for the quarter that ended in Feb. 2015 is calculated as:

Return on Capital (ROC)(Q: Feb. 2015 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (Q: Nov. 2014 ) + Invested Capital (Q: Feb. 2015 ))/2)
=694.468 * ( 1 - 36.23% )/( (2676.61 + 2944.472)/2)
=442.8622436/2810.541
=15.76 %

where

Invested Capital(Q: Nov. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=1300 + 0 + 2203.334 - 826.724
=2676.61

Invested Capital(Q: Feb. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=1300 + 0 + 2047.666 - 403.194
=2944.472

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

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

Cintas Corp's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Feb. 2015 is calculated as:

ROC (Joel Greenblatt’s)(Q: Feb. 2015 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=EBIT/Average of (Net PPE+Net Working Capital)
     Q: Nov. 2014  Q: Feb. 2015
=EBIT/( ( (Net PPE + Net Working Capital) + (Net PPE + Net Working Capital) )/2 )
=694.852/( ( (845.127 + max(467.492, 0)) + (853.391 + max(727.7, 0)) )/2 )
=694.852/( ( 1312.619 + 1581.091 )/2 )
=694.852/1446.855
=48.02 %

where Working Capital is:

Working Capital(Q: Nov. 2014 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(510.153 + 235.86 + 573.243) - (752.397 + 98.313 + 1.054)
=467.492

Working Capital(Q: Feb. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(497.978 + 234.641 + 574.312) - (471.831 + 106.788 + 0.612)
=727.7

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 (Feb. 2015) EBIT data.

3. Operating Income is also linked to Operating Margin:

Cintas Corp's Operating Margin for the quarter that ended in Feb. 2015 is calculated as:

Operating Margin=Operating Income (Q: Feb. 2015 )/Total Revenue (Q: Feb. 2015 )
=173.617/1108.847
=15.66 %

* 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.

Cintas Corp Annual Data

May05May06May07May08May09May10May11May12May13May14
Operating Income 487543577577409391440540565567

Cintas Corp Quarterly Data

Nov12Feb13May13Aug13Nov13Feb14May14Aug14Nov14Feb15
Operating Income 139133154140152150126163181174
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