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Legg Mason Inc (NYSE:LM)
Operating Income
$503 Mil (TTM As of Jun. 2015)

Legg Mason Inc's operating income for the three months ended in Jun. 2015 was $125 Mil. Its operating income for the trailing twelve months (TTM) ended in Jun. 2015 was $503 Mil.

Operating margin is calculated as operating income divided by its revenue. Legg Mason Inc's operating income for the three months ended in Jun. 2015 was $125 Mil. Legg Mason Inc's revenue for the three months ended in Jun. 2015 was $709 Mil. Therefore, Legg Mason Inc's operating margin for the quarter that ended in Jun. 2015 was 17.57%.

Legg Mason Inc'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. Legg Mason Inc's annualized return on capital for the quarter that ended in Jun. 2015 was 8.81%. Legg Mason Inc's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Jun. 2015 was 206.54%.


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.

Legg Mason Inc's Operating Income for the fiscal year that ended in Mar. 2015 is calculated as

Operating Income(A: Mar. 2015 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=2819.106-0-2119.704
-Research & Development-Depreciation, Depletion & Amortization-Others
-0-55.086-146.097
=498

Legg Mason Inc's Operating Income for the quarter that ended in Jun. 2015 is calculated as

Operating Income(Q: Jun. 2015 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=708.65-0-539.004
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-13.975-31.128
=125

Operating Income(Q: Jun. 2015 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=145.953-13.975-7.435
=125

Legg Mason Inc Operating Income for the trailing twelve months (TTM) ended in Jun. 2015 was 130.355 (Sep. 2014 ) + 119.368 (Dec. 2014 ) + 128.95 (Mar. 2015 ) + 124.543 (Jun. 2015 ) = $503 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.

Legg Mason Inc's annualized Return on Capital (ROC) for the quarter that ended in Jun. 2015 is calculated as:

Return on Capital (ROC)(Q: Jun. 2015 )
=NOPAT/Average Invested Capital
=Oper. Inc.*(1-Tax Rate)/( (Invested Capital (Q: Mar. 2015 ) + Invested Capital (Q: Jun. 2015 ))/2)
=498.172 * ( 1 - 20.9% )/( (4374.331 + 4574.099)/2)
=394.054052/4474.215
=8.81 %

where

Invested Capital(Q: Mar. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=1058.089 + 6.436 + 4484.901 - 1175.095
=4374.331

Invested Capital(Q: Jun. 2015 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt + Short-Term Debt + Total Equity - Cash
=1057.122 + 0 + 4522.206 - 1005.229
=4574.099

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

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

Legg Mason Inc's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Jun. 2015 is calculated as:

ROC (Joel Greenblatt’s)(Q: Jun. 2015 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=EBIT/Average of (Net PPE+Net Working Capital)
     Q: Mar. 2015  Q: Jun. 2015
=EBIT/( ( (Net PPE + Net Working Capital) + (Net PPE + Net Working Capital) )/2 )
=527.912/( ( (179.606 + max(-61.67, 0)) + (175.897 + max(155.703, 0)) )/2 )
=527.912/( ( 179.606 + 331.6 )/2 )
=527.912/255.603
=206.54 %

where Working Capital is:

Working Capital(Q: Mar. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(368.399 + 0 + 378.541) - (608.455 + 0 + 200.155)
=-61.67

Working Capital(Q: Jun. 2015 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(349.024 + 0 + 321.227) - (394.952 + 0 + 119.596)
=155.703

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 (Jun. 2015) EBIT data.

3. Operating Income is also linked to Operating Margin:

Legg Mason Inc's Operating Margin for the quarter that ended in Jun. 2015 is calculated as:

Operating Margin=Operating Income (Q: Jun. 2015 )/Total Revenue (Q: Jun. 2015 )
=124.543/708.65
=17.57 %

* 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.

Legg Mason Inc Annual Data

Mar06Mar07Mar08Mar09Mar10Mar11Mar12Mar13Mar14Mar15
Operating Income 6801,0281,050-669321387339-434431498

Legg Mason Inc Quarterly Data

Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14Mar15Jun15
Operating Income 4384106122119120130119129125
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