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Titanium Metals Corporation (NYSE:TIE)
Operating Income
$175 Mil (TTM As of Sep. 2012)

Titanium Metals Corporation's operating income for the six months ended in Sep. 2012 was $33 Mil. Its operating income for the trailing twelve months (TTM) ended in Sep. 2012 was $175 Mil.

Operating margin is calculated as operating income divided by its revenue. Titanium Metals Corporation's operating income for the six months ended in Sep. 2012 was $33 Mil. Titanium Metals Corporation's revenue for the six months ended in Sep. 2012 was $258 Mil. Therefore, Titanium Metals Corporation's operating margin for the quarter that ended in Sep. 2012 was 12.69%.

Warning Sign:

Titanium Metals Corporation operating margin has been in 5-year decline. The average rate of decline per year is -16.9%.

Titanium Metals Corporation's 3-Year average Growth Rate for operating margin was -16.90% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. Titanium Metals Corporation's annualized return on capital for the quarter that ended in Sep. 2012 was 2.45%. Titanium Metals Corporation's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Sep. 2012 was 5.14%.

Operating income is also linked to Joel Greenblatt’s definition of earnings yield. Titanium Metals Corporation's earnings yield (Joel Greenblatt’s) for the quarter that ended in Sep. 2012 was 7.49%.


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.

Titanium Metals Corporation's Operating Income for the fiscal year that ended in Dec. 2011 is calculated as

Operating Income (EBIT)(A: Dec. 2011 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=1045.2-821.6-64.5
-Research & Development-Depreciation, Depletion & Amortization-Others
-0-50.5--66
=175

Titanium Metals Corporation's Operating Income for the quarter that ended in Sep. 2012 is calculated as

Operating Income (EBIT)(Q: Sep. 2012 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=257.7-207.4-17.7
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-13.9--14
=33

Operating Income (EBIT)(Q: Sep. 2012 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=46.6-13.9-0
=33

For company reported semi-annually, GuruFocus uses latest annual data as the TTM data. Titanium Metals Corporation Operating Income for the trailing twelve months (TTM) ended in Sep. 2012 was $175 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.

Titanium Metals Corporation's annualized Return on Capital (ROC) for the quarter that ended in Sep. 2012 is calculated as:

Return on Capital (ROC)(Q: Sep. 2012 )
=(EBIT - Adjusted Taxes)/Average Total Capital
=Net Income/( (Total Capital (Q: Jun. 2012 ) + Total Capital (Q: Sep. 2012 ))/ 2 )
=37.2/( (1500.4 + 1538.5)/ 2 )
=37.2/1519.45
=2.45 %

where

Total Capital(Q: Jun. 2012 )
=Book Value of Debt + Book Value of Equity - Cash
=Total Current Assets + Property, Plant and Equipment + Other Current Assets
=1066.5 + 387.3 + 46.6
=1500.4

Total Capital(Q: Sep. 2012 )
=Book Value of Debt + Book Value of Equity - Cash
=Total Current Assets + Property, Plant and Equipment + Other Current Assets
=1086.4 + 402.4 + 49.7
=1538.5

Note: The Net Income data used here is two times the semi-annual (Sep. 2012) net income data.

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

Titanium Metals Corporation's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Sep. 2012 is calculated as:

ROC (Joel Greenblatt’s)(Q: Sep. 2012 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=Operating Income/Average of (Net PPE+Net Working Capital)
     Q: Jun. 2012  Q: Sep. 2012
=Operating Income/( ( (Net PPE + Net Working Capital) + (Net PPE + Net Working Capital) )/2 )
=65.4/( ( (387.3 + max(868.3, 0)) + (402.4 + max(885.8, 0)) )/2 )
=65.4/( ( 1255.6 + 1288.2 )/2 )
=65.4/1271.9
=5.14 %

where Working Capital is:

Working Capital(Q: Jun. 2012 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(198.8 + 793.7 + 46.6) - (170.8 + 0 + 0)
=868.3

Working Capital(Q: Sep. 2012 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(171.3 + 844.8 + 49.7) - (125.3 + 14.3 + 40.4)
=885.8

When net working capital is negative, 0 is used.

Note: The Operating Income data used here is two times the semi-annual (Sep. 2012) operating income data.

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

Titanium Metals Corporation's Earnings Yield (Joel Greenblatt’s) for the quarter that ended in Sep. 2012 is calculated as:

Earnings Yield (Joel Greenblatt’s)=Operating Income (TTM)/Enterprise Value (Q: Sep. 2012 )
=174.6/2331.233
=7.49 %

4. EBIT is also linked to Operating Margin:

Titanium Metals Corporation's Operating Margin for the quarter that ended in Sep. 2012 is calculated as:

Operating Margin=Operating Income (Q: Sep. 2012 )/Total Revenue (Q: Sep. 2012 )
=32.7/257.7
=12.69 %

* 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.

Titanium Metals Corporation Annual Data

Dec02Dec03Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11
Operating Income -46-193517138337222055121175

Titanium Metals Corporation Semi-Annual Data

Jun10Sep10Dec10Mar11Jun11Sep11Dec11Mar12Jun12Sep12
Operating Income 27363445473945424433
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