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Tesco PLC (OTCPK:TSCDY)
Operating Income
$4,370 Mil (TTM As of Feb. 2014)

Tesco PLC's operating income for the six months ended in Feb. 2014 was $1,767 Mil. Its operating income for the trailing twelve months (TTM) ended in Feb. 2014 was $4,370 Mil.

Operating margin is calculated as operating income divided by its revenue. Tesco PLC's operating income for the six months ended in Feb. 2014 was $1,767 Mil. Tesco PLC's revenue for the six months ended in Feb. 2014 was $52,563 Mil. Therefore, Tesco PLC's operating margin for the quarter that ended in Feb. 2014 was 3.36%.

Warning Sign:

Tesco PLC operating margin has been in 5-year decline. The average rate of decline per year is -8.7%.

Tesco PLC's 3-Year average Growth Rate for operating margin was -8.70% per year.

Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt’s definition. Tesco PLC's annualized return on capital for the quarter that ended in Feb. 2014 was 0.72%. Tesco PLC's annualized return on capital (Joel Greenblatt’s) for the quarter that ended in Feb. 2014 was 8.71%.

Operating income is also linked to Joel Greenblatt’s definition of earnings yield. Tesco PLC's earnings yield (Joel Greenblatt’s) for the quarter that ended in Feb. 2014 was 7.61%.


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.

Tesco PLC's Operating Income for the fiscal year that ended in Feb. 2014 is calculated as

Operating Income (EBIT)(A: Feb. 2014 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=105576.41196-98915.282392-2752.49169435
-Research & Development-Depreciation, Depletion & Amortization-Others
-0-2602.99003322--3064.78405316
=4,370

Tesco PLC's Operating Income for the quarter that ended in Feb. 2014 is calculated as

Operating Income (EBIT)(Q: Feb. 2014 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=52563.1229236-49792.358804-1390.3654485
-Research & Development-Depreciation, Depletion & Amortization-Others (1)
-0-1287.37541528--1674.41860465
=1,767

Operating Income (EBIT)(Q: Feb. 2014 )
=EBITDA-Depreciation, Depletion & Amortization-Others (2)
=3018.27242525-1287.37541528--36.5448504983
=1,767

For company reported semi-annually, GuruFocus uses latest annual data as the TTM data. Tesco PLC Operating Income for the trailing twelve months (TTM) ended in Feb. 2014 was $4,370 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.

Tesco PLC's annualized Return on Capital (ROC) for the quarter that ended in Feb. 2014 is calculated as:

Return on Capital (ROC)(Q: Feb. 2014 )
=(EBIT - Adjusted Taxes)/Average Total Capital
=Net Income/( (Total Capital (Q: Aug. 2013 ) + Total Capital (Q: Feb. 2014 ))/ 2 )
=511.627906977/( (65489.6661367 + 76853.820598)/ 2 )
=511.627906977/71171.7433674
=0.72 %

where

Total Capital(Q: Aug. 2013 )
=Book Value of Debt + Book Value of Equity - Cash
=Total Current Assets + Property, Plant and Equipment + Other Current Assets
=19364.0699523 + 40465.8187599 + 5659.77742448
=65489.6661367

Total Capital(Q: Feb. 2014 )
=Book Value of Debt + Book Value of Equity - Cash
=Total Current Assets + Property, Plant and Equipment + Other Current Assets
=25867.1096346 + 40681.0631229 + 10305.6478405
=76853.820598

Note: The Net Income data used here is two times the semi-annual (Feb. 2014) net income data.

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

Tesco PLC's annualized Return on Capital (Joel Greenblatt’s) for the quarter that ended in Feb. 2014 is calculated as:

ROC (Joel Greenblatt’s)(Q: Feb. 2014 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=Operating Income/Average of (Net PPE+Net Working Capital)
     Q: Aug. 2013  Q: Feb. 2014
=Operating Income/( ( (Net PPE + Net Working Capital) + (Net PPE + Net Working Capital) )/2 )
=3534.88372093/( ( (40465.8187599 + max(-13077.9014308, 0)) + (40681.0631229 + max(-12490.0332226, 0)) )/2 )
=3534.88372093/( ( 40465.8187599 + 40681.0631229 )/2 )
=3534.88372093/40573.4409414
=8.71 %

where Working Capital is:

Working Capital(Q: Aug. 2013 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(3898.25119237 + 5823.52941176 + 5659.77742448) - (0 + 0 + 28459.4594595)
=-13077.9014308

Working Capital(Q: Feb. 2014 )
=(Accts Rec. + Inventory + Other Curr. Ass.) - (Accts Pay. + Defer. Rev. + Other Curr. Liab.)
=(3637.87375415 + 5940.19933555 + 10305.6478405) - (0 + 0 + 32373.7541528)
=-12490.0332226

When net working capital is negative, 0 is used.

Note: The Operating Income data used here is two times the semi-annual (Feb. 2014) operating income data.

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

Tesco PLC's Earnings Yield (Joel Greenblatt’s) for the quarter that ended in Feb. 2014 is calculated as:

Earnings Yield (Joel Greenblatt’s)=Operating Income (TTM)/Enterprise Value (Q: Feb. 2014 )
=4370.43189369/57418.4397724
=7.61 %

4. EBIT is also linked to Operating Margin:

Tesco PLC's Operating Margin for the quarter that ended in Feb. 2014 is calculated as:

Operating Margin=Operating Income (Q: Feb. 2014 )/Total Revenue (Q: Feb. 2014 )
=1767.44186047/52563.1229236
=3.36 %

* 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.

Tesco PLC Annual Data

Feb05Feb06Feb07Feb08Feb09Feb10Feb11Feb12Feb13Feb14
Operating Income 3,7183,9795,1525,5824,4895,2066,3286,6173,5934,370

Tesco PLC Semi-Annual Data

Aug09Feb10Aug10Feb11Aug11Feb12Aug12Feb13Aug13Feb14
Operating Income 2,6132,7942,8533,3733,0553,5523,2345692,4911,767
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