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Keurig Green Mountain Inc (NAS:GMCR)
Operating Income
$710 Mil (TTM As of Dec. 2015)

Keurig Green Mountain Inc's operating income for the three months ended in Dec. 2015 was $161 Mil. Its operating income for the trailing twelve months (TTM) ended in Dec. 2015 was $710 Mil.

Operating margin is calculated as operating income divided by its revenue. Keurig Green Mountain Inc's operating income for the three months ended in Dec. 2015 was $161 Mil. Keurig Green Mountain Inc's revenue for the three months ended in Dec. 2015 was $1,258 Mil. Therefore, Keurig Green Mountain Inc's operating margin for the quarter that ended in Dec. 2015 was 12.78%.

Keurig Green Mountain Inc's 5-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. Keurig Green Mountain Inc's annualized return on capital for the quarter that ended in Dec. 2015 was 14.08%. Keurig Green Mountain Inc's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Dec. 2015 was 31.16%.


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.

Keurig Green Mountain Inc's Operating Income for the fiscal year that ended in Sep. 2015 is calculated as

Operating Income(A: Sep. 2015 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=4520.031-2912.507-826.85
-Research & Development-Depreciation, Depletion & Amortization-Others
-0-265.663--250.413
=765

Keurig Green Mountain Inc's Operating Income for the quarter that ended in Dec. 2015 is calculated as

Operating Income(Q: Dec. 2015 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=1258.421-898.424-198.503
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-72.717--72.036
=161

Operating Income(Q: Dec. 2015 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=233.893-72.717-0.363
=161

Keurig Green Mountain Inc Operating Income for the trailing twelve months (TTM) ended in Dec. 2015 was 243.977 (Mar. 2015 ) + 161.359 (Jun. 2015 ) + 144.161 (Sep. 2015 ) + 160.813 (Dec. 2015 ) = $710 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.

Keurig Green Mountain Inc's annualized Return on Capital (ROC) for the quarter that ended in Dec. 2015 is calculated as:

Return on Capital (ROC)(Q: Dec. 2015 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (Q: Sep. 2015 ) + Invested Capital (Q: Dec. 2015 ))/2)
=643.252 * ( 1 - 34.25% )/( (3101.527 + 2905.277)/2)
=422.93819/3003.402
=14.08 %

where

Invested Capital(Q: Sep. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=447.953 + 3.55 + 2709.358 - 59.334
=3101.527

Invested Capital(Q: Dec. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=597.245 + 3.28 + 2519.661 - 214.909
=2905.277

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

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

Keurig Green Mountain Inc's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Dec. 2015 is calculated as:

ROC (Joel Greenblatt’s)(Q: Dec. 2015 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=EBIT/Average of (Net PPE+Net Working Capital)
     Q: Sep. 2015  Q: Dec. 2015
=EBIT/( ( (Net PPE + Net Working Capital) + (Net PPE + Net Working Capital) )/2 )
=644.704/( ( (1293.563 + max(859.295, 0)) + (1264.509 + max(720.825, 0)) )/2 )
=644.704/( ( 2152.858 + 1985.334 )/2 )
=644.704/2069.096
=31.16 %

where Working Capital is:

Working Capital(Q: Sep. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(517.936 + 691.98 + 247.953) - (570.261 + 0.264 + 28.049)
=859.295

Working Capital(Q: Dec. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(581.054 + 517.745 + 198.216) - (547.395 + 0.332 + 28.463)
=720.825

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 (Dec. 2015) EBIT data.

3. Operating Income is also linked to Operating Margin:

Keurig Green Mountain Inc's Operating Margin for the quarter that ended in Dec. 2015 is calculated as:

Operating Margin=Operating Income (Q: Dec. 2015 )/Total Revenue (Q: Dec. 2015 )
=160.813/1258.421
=12.78 %

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

4. Please click Growth Rate Calculation Example (GuruFocus) to see how GuruFocus calculates Wal-Mart Stores Inc (WMT)'s revenue growth rate. You can apply the same method to get the operating income growth rate using operating income per share data.


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, Growth Rate Calculation Example (GuruFocus)


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Keurig Green Mountain Inc Annual Data

Sep06Sep07Sep08Sep09Sep10Sep11Sep12Sep13Sep14Sep15
Operating Income 18284293139369569765947765

Keurig Green Mountain Inc Quarterly Data

Sep13Dec13Mar14Jun14Sep14Dec14Mar15Jun15Sep15Dec15
Operating Income 177227260231229216244161144161
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