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Cintas Corp (NAS:CTAS)
Operating Income
$619 Mil (TTM As of Nov. 2014)

Cintas Corp's operating income for the three months ended in Nov. 2014 was $181 Mil. Its operating income for the trailing twelve months (TTM) ended in Nov. 2014 was $619 Mil.

Operating margin is calculated as operating income divided by its revenue. Cintas Corp's operating income for the three months ended in Nov. 2014 was $181 Mil. Cintas Corp's revenue for the three months ended in Nov. 2014 was $1,123 Mil. Therefore, Cintas Corp's operating margin for the quarter that ended in Nov. 2014 was 16.13%.

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 Nov. 2014 was 13.55%. Cintas Corp's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Nov. 2014 was 49.19%.

Operating income is also linked to Joel Greenblatt’s definition of earnings yield. Cintas Corp's earnings yield (Joel Greenblatt’s) for the quarter that ended in Nov. 2014 was 6.85%.


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.

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

Operating Income (EBIT)(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 Nov. 2014 is calculated as

Operating Income (EBIT)(Q: Nov. 2014 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=1123.379-641.955-300.249
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-38.499--38.499
=181

Operating Income (EBIT)(Q: Nov. 2014 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=219.693-38.499-0.019
=181

Cintas Corp Operating Income for the trailing twelve months (TTM) ended in Nov. 2014 was 150.162 (Feb. 2014 ) + 123.806 (May. 2014 ) + 163.488 (Aug. 2014 ) + 181.175 (Nov. 2014 ) = $619 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 Nov. 2014 is calculated as:

Return on Capital (ROC)(Q: Nov. 2014 )
=(EBIT - Adjusted Taxes)/Average Total Capital
=Net Income/( (Total Capital (Q: Aug. 2014 ) + Total Capital (Q: Nov. 2014 ))/ 2 )
=481.648/( (3543.91 + 3564.35)/ 2 )
=481.648/3554.13
=13.55 %

where

Total Capital(Q: Aug. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Total Current Assets + Property, Plant and Equipment + Other Current Assets
=2012.949 + 838.493 + 692.468
=3543.91

Total Capital(Q: Nov. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Total Current Assets + Property, Plant and Equipment + Other Current Assets
=2145.98 + 845.127 + 573.243
=3564.35

Note: The Net Income data used here is four times the quarterly (Nov. 2014) net 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 Nov. 2014 is calculated as:

ROC (Joel Greenblatt’s)(Q: Nov. 2014 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=Operating Income/Average of (Net PPE+Net Working Capital)
     Q: Aug. 2014  Q: Nov. 2014
=Operating Income/( ( (Net PPE + Net Working Capital) + (Net PPE + Net Working Capital) )/2 )
=724.7/( ( (838.493 + max(795.485, 0)) + (845.127 + max(467.492, 0)) )/2 )
=724.7/( ( 1633.978 + 1312.619 )/2 )
=724.7/1473.2985
=49.19 %

where Working Capital is:

Working Capital(Q: Aug. 2014 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(489.211 + 249.817 + 692.468) - (532.998 + 87.842 + 15.171)
=795.485

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

When net working capital is negative, 0 is used.

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

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

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

Earnings Yield (Joel Greenblatt’s)=Operating Income (TTM)/Enterprise Value (Q: Nov. 2014 )
=618.631/9030.363
=6.85 %

4. EBIT is also linked to Operating Margin:

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

Operating Margin=Operating Income (Q: Nov. 2014 )/Total Revenue (Q: Nov. 2014 )
=181.175/1123.379
=16.13 %

* 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.

Cintas Corp Annual Data

May05May06May07May08May09May10May11May12May13May14
Operating Income 487543577577409391440540565567

Cintas Corp Quarterly Data

Aug12Nov12Feb13May13Aug13Nov13Feb14May14Aug14Nov14
Operating Income 139139133154140153150124163181
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