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Primus Guaranty Ltd  (OTCPK:PRSG) Operating Income: $-43.71 Mil (TTM As of Dec. 2011)

Primus Guaranty Ltd's Operating Income for the three months ended in Dec. 2011 was $100.49 Mil. ts operating income for the trailing twelve months (TTM) ended in Dec. 2011 was $-43.71 Mil.

Operating Margin % is calculated as Operating Income divided by its Revenue. Primus Guaranty Ltd's Operating Income for the three months ended in Dec. 2011 was $100.49 Mil. Primus Guaranty Ltd's Revenue for the three months ended in Dec. 2011 was $103.17 Mil. Therefore, Primus Guaranty Ltd's Operating Margin % for the quarter that ended in Dec. 2011 was 97.40%.

Primus Guaranty Ltd'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. Primus Guaranty Ltd's annualized ROC % for the quarter that ended in Dec. 2011 was %. Primus Guaranty Ltd's annualized ROC (Joel Greenblatt) % for the quarter that ended in Dec. 2011 was 1,132,270.42%.


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

* Premium members only.

Primus Guaranty Ltd Annual Data

Dec02 Dec03 Dec04 Dec05 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11
Operating Income Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only -555.92 -1,709.44 1,467.30 246.87 -37.88

Primus Guaranty Ltd Quarterly Data

Mar07 Jun07 Sep07 Dec07 Mar08 Jun08 Sep08 Dec08 Mar09 Jun09 Sep09 Dec09 Mar10 Jun10 Sep10 Dec10 Mar11 Jun11 Sep11 Dec11
Operating Income Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 130.04 80.11 59.03 -283.34 100.49

Calculation

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.

Primus Guaranty Ltd's Operating Income for the fiscal year that ended in Dec. 2011 is calculated as

Operating Income(A: Dec. 2011 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=-24.48-0-6.527
-Research & Development-Depreciation, Depletion and Amortization-Others
-0-0.053-6.822
=-37.88

Primus Guaranty Ltd's Operating Income for the quarter that ended in is calculated as

Operating Income(Q: Dec. 2011 )
=Revenue-Cost of Goods Sold-Selling, General, & Admin. Expense
=103.167-0-1.392
-Research & Development-Depreciation, Depletion and Amortization-Others (1)
-0-0-1.286
=100.49

Operating Income(Q: Dec. 2011 )
=EBITDA-Depreciation, Depletion and Amortization-Others (2)
=100.489-0-0
=100.49

Operating Income for the trailing twelve months (TTM) ended in Dec. 2011 was 80.112 (Mar. 2011 ) + 59.032 (Jun. 2011 ) + -283.342 (Sep. 2011 ) + 100.489 (Dec. 2011 ) = $-43.71 Mil.

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.


Explanation

1. Operating Income or EBIT is linked to Return on Capital for both regular definition and Joel Greenblatt's definition.

Primus Guaranty Ltd's annualized ROC % for the quarter that ended in Dec. 2011 is calculated as:

ROC %(Q: Dec. 2011 )
=NOPAT/Average Invested Capital
=Operating Income*(1-Tax Rate)/( (Invested Capital (Q: Sep. 2011 ) + Invested Capital (Q: Dec. 2011 ))/2)
=401.956 * ( 1 - 0% )/( (-487.767 + -60.551)/2)
=401.956/-274.159
= %

where

Invested Capital(Q: Sep. 2011 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt & Capital Lease Obligation + Current Portion of Long-Term Debt + Total Equity - Cash
=191.511 + 0 + -243.065 - 436.213
=-487.767

Invested Capital(Q: Dec. 2011 )
=Book Value of Debt + Book Value of Equity - Cash
=Long-Term Debt & Capital Lease Obligation + Current Portion of Long-Term Debt + Total Equity - Cash
=172.334 + 0 + -145.638 - 87.247
=-60.551

Note: The Operating Income data used here is four times the quarterly (Dec. 2011) operating income data.

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

Primus Guaranty Ltd's annualized ROC (Joel Greenblatt) % for the quarter that ended in Dec. 2011 is calculated as:

ROC (Joel Greenblatt's)(Q: Dec. 2011 )
=EBIT/Average of (Net fixed Assets + Net Working Capital)
=EBIT/Average of (Property, Plant and Equipment+Net Working Capital)
     Q: Sep. 2011  Q: Dec. 2011
=EBIT/( ( (Property, Plant and Equipment + Net Working Capital) + (Property, Plant and Equipment + Net Working Capital) )/2 )
=401.956/( ( (0 + max(-436.213, 0)) + (0.071 + max(-87.247, 0)) )/2 )
=401.956/( ( 0 + 0.071 )/2 )
=401.956/0.0355
=1,132,270.42 %

where Working Capital is:

Working Capital(Q: Sep. 2011 )
=(Accounts Receivable + Total Inventories + Other Current Assets) - (Accounts Payable & Accrued Expense + Defer. Rev. + Other Current Liabilities)
=(5.405 + 0 + -441.618) - (6.377 + 0 + -6.377)
=-436.213

Working Capital(Q: Dec. 2011 )
=(Accounts Receivable + Total Inventories + Other Current Assets) - (Accounts Payable & Accrued Expense + Defer. Rev. + Other Current Liabilities)
=(5.725 + 0 + -92.972) - (7.832 + 0 + -7.832)
=-87.247

When net working capital is negative, 0 is used.

Note: The EBIT data used here is four times the quarterly (Dec. 2011) EBIT data.

3. Operating Income is also linked to Operating Margin:

Primus Guaranty Ltd's Operating Margin % for the quarter that ended in Dec. 2011 is calculated as:

Operating Margin %=Operating Income (Q: Dec. 2011 )/Revenue (Q: Dec. 2011 )
=100.489/103.167
=97.40 %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's 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.


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