WARNING: Problem with Gross Mgn % TTM values

16th Jan '22 by simoan

10 comments 1010 reads

I thought I'd quickly flag an issue I reported to Stockopedia two weeks ago that has still not been fixed which concerns the data for "Gross Mgn % TTM ". A number of companies have an incorrect value of 0 % which will affect any screens filtering Gross margins i.e. Gross Mgn % TTM > 50 if you're looking for really good quality companies only. It also affects the 8th test of the Piotroski F-score, which itself plays a significant factor in the Quality Rank as part of the StockRank system.

This is most easily seen by Browse>Indices then selecting UKX ( FTSE 100 Index). Then select the Quality table view and set the "Gross Mgn % TTM" column for descending order. You will find the bottom of Page 2 and the whole of Page 3 lists companies with "Gross Mgn % TTM = 0" as follows:

https://www.stockopedia.com/in...

Obviously, you'd expect some financials, banks etc. to have a 0% Gross Margin, but not companies such as Rio Tinto (LON:RIO) Rentokil Initial (LON:RTO) Unilever (LON:ULVR) Halma (LON:HLMA) Bunzl (LON:BNZL) etc.

Anyway, just a heads up. No idea when this will get fixed as little progress has been made thus far.

All the best, Si

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abtan

16th Jan '22

Thanks Si

Gross Margin is one of the key metrics I use and is perhaps the 1 metric that I wish I could play around with more eg by looking at Price/Gross Profit rather than P/S (what's the point in rising sales if gross margins are being compromised?)

I should add that I've never seen Price/GM mentioned anywhere, so perhaps I am missing something...but nonetheless the ability to play around with different metrics would be nice.

Onto your point, thankfully I use 5 year average gross margins in some of my screens and this seems to be working okay, or at least the figures looked okay for Unilever (LON:ULVR) .

Good spot though with the Gross Mgn % TTM. Hopefully it's sorted out soon.

Cheers

simoan

Hi abtan,

Yes, I normally screen using the 5 year average but then check against the most recent value to check for a declining margin. This was how I noticed the TTM GM = 0 issue. It’s also odd that you can’t check manually using the income statement. If you view it, it defaults to annual and there are rows for Cost of revenue and Gross profit. However, these rows disappear when you switch to the Interim view!!

Something is not right.

dennisvictor

17th Jan '22

Thanks for the heads-up! I wonder if it plays into the quality rank because it looks to be linked directly to TTM and looks like a display error?

I just tested on one of my screens that has Mastercard and VISA next to each other. Here VISA plays correctly around 80% while Mastercard is 0%.

Strange.

Validity of data is crucial for Stockopedia so this issue should be the highest priority.

That's interesting. I don't have access to the US data so it seems the issue is not just related to the UK. I believe for any company yet to include the current FY results data the TTM value is used and compared against the "Last Year TTM" value in test 8 of the F-score. This in turn feeds into the Quality Rank.

The most frustrating thing is you can't even calculate the Gross Margin % TTM yourself by hand because using the Income statement the Gross Profit row disappears when you select the Interim view :(

It is across US, EU and UK stocks on my screens. For the record it shows incorrectly on all gross margin parameters when there is an error, so TTM, Last Year, 5Y CAGR etc.

Curious why you haven't yet had a reply from Stockopedia.

FWIW I have had a reply. It's just that very little has happened and no positive feedback on why this occurred and when it will be fixed since I reported the issue two weeks ago. So far, I've only received the standard "problem with the data provider" response. Apparently it is Refinitiv who calculate these ratios. Perhaps I should sell my holding in London Stock Exchange (LON:LSEG) :-)

BTW I think it would help if others complained about this also.

Of course, there's another issue here. If a business is such that it effectively has not Cost of Revenue/Goods Sold (e.g. non banking financials) should the Gross Margin value not be 100% rather than 0%?

Edward Croft

Simoan and all,

The issue here is that the companies mentioned (Unilever etc) aren't publishing Gross Profits as a chart of account in their interim or quarterly results. It's surprising to me that Unilever wouldn't break out their COGS in their quarterly results - but that seems to be the case. You can validate that here. All COGS & operating costs are rolled into "Other Operating Expenses" rather than being broken out into COGS and SGA etc.

So we can't calculate the Gross Margin in these situations where data is not reported by the company. The value should be returning NULL rather than 0% which would exclude these results from any screens using the Gross Margin TTM. NULL would be the correct data result - from a data quality perspective - even though we all know it wouldn't be accurate. I appreciate it's not the result we would all prefer - but the issue here lies with the companies not reporting the input data required.

If you rely on a Gross Margin calculation, I would advise using the "Gross Margin Last Year" field as you'll have more comprehensive results across all companies - all the companies mentioned DO report Gross Profits annually.

I don't agree with the suggestion to set the Gross Margin to 100% for companies that don't report COGS. That would be an incorrect value and misleading in other ways.

All the best,

PS - we don't use the Gross Margin in any of our StockRank calculations. And it's not published on StockReports. Gross Profits to Assets is used in the Quality Rank calculation- but we use the Annual measure for this reason.

See the Unilever Q2 Report here :

18th Jan '22

Thanks Ed, that makes sense. I didn't realise so many companies did not provide a separate entry for COGS in their Interims but did at the FY. That would explain why pretty much all companies showing this problem currently have a December year end, which I had noticed. TBH I have no interest in reading the accounts of FTSE100 companies so had not spotted this myself.

I agree that leaving the value at 0% is not meaningful and some kind of non-numeric entry such as NULL could be returned but I imagine that's probably easier said than done coding wise. Maybe if a numeric GM is required, a "sticky" value showing the GM from the first 6 months of the TTM period would be a better approximation to the real world figure than "NULL". I think at the very least where this issue occurs the Cost of Revenue and Gross Profit rows in the Income statement should not completely disappear when you switch to the Interim view! I hope something can be done about that because it is inconsistent and confusing.

This was a rhetorical question, not a suggestion! And it related only to non-banking financials such as Mastercard and Visa (as mentioned by dennisvictor) because these companies basically have real world GMs of ~100%!

I'm surprised by this because when I looked at the F-score for these companies they all used the Gross Mgn % TTM and compared it to the previous years number. I thought the F-score played a part in the Quality Rank?

Rusty2

F score certainly does play a part in the Q score. You may remember last October, there was a glitch when the F score went missing, on around 20% of stocks, the Q score went down considerably. It shows on the Rentokil Initial (LON:RTO) Stockrank chart, SR fell from 73 to 56 for a few days. It came to light because the Q score fell on Sylvania Platinum (LON:SLP) fell from about 95 to around 50.

WARNING: Problem with Gross Mgn % TTM values

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Simoan

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