Company financial reports come in many shapes and sizes, which can make it very difficult to analyze and compare financial results among different firms. Moreover, the layout conventions of many reports have their roots in printed form designs, so it can be difficult to import any particular company's information into modern analytical software tools. This is an important reason why investment professionals subscribe to services that collect data and put it into standardized forms for analytical use.
Standard & Poor's Compustat—available in the Fidelity Research Center—is a leading source of this intelligence for financial market professionals. Compustat data can be viewed as a detailed portrait of the financial performance of virtually any public company in the United States (and many in other major markets). Compustat data can also be used for stock screening so that you can identify and group companies around virtually any financial characteristics you might wish. And it can be used to calculate industry and peer group averages that can help you see how a firm might be performing in comparison to its competitors.
Consider the range of data
Raw financial reports filed by every public company (annually and quarterly) are compiled in the system. This includes the current income, expenses, assets, and liabilities as defined by generally accepted accounting principles (GAAP). It also includes past reports of the same data so that performance trends can be analyzed over time.
Each company's financial reporting in Compustat is supplemented by its stock price history and by various analysts' assessments about its performance. Together, this detailed data supports a wide range of actionable insights to support your investment decision making:
Standardized core earnings
Every company may report earnings according to GAAP in its annual and quarterly financial reports, but the wide variations allowed by GAAP can make analyses difficult. Standard & Poor's Core Earnings are designed to address the need for meaningful comparisons with a uniform methodology for calculating operating earnings. Drawing on information collected from primary report tables, footnotes, and supplemental statements, the core earnings estimate focuses on a company's after-tax earnings generated from its principal businesses. The core earnings concept seeks to be sure that typical costs such as employee stock options and pensions are fully attributed to operations, but significant non-operating factors—such as pension plan gains and gains or losses from asset sales—are excluded from operating calculations.
Standardized peer group comparisons
Management effectiveness may be gauged not only by a company's own performance metrics but also by how it ranks relative to its peers in those metrics. Compustat's depth of information is used to calculate industry norms for important ratios and statistics such as return on assets, price-to-cash flow, and net margin, and then rank each company against its industry and sector peers. As a result, you can readily ascertain how well a company you might be considering manages its shareholder resources and responds to market trends.
Standardized accounting presentations
GAAP may require that all material information about financial performance be disclosed, but it does not always mandate a single form for that disclosure. Important numbers in a company report may be revealed in a table, a graph, a narrative, or a footnote. In a Compustat report, however, all significant categories and subtotals are detailed in tables that can be readily compared from company to company.
The underpinning: analytically standardized fundamental data
Every report incorporated into the Compustat database is reviewed by analysts for adherence to Compustat’s reporting and presentation formats. Relevant numbers may be extracted from footnotes and narratives for incorporation into Compustat tables. If necessary, tabular data may be adjusted or reapportioned.
To further enhance the precision and accuracy of the core database, data feeds from third parties are reviewed to help ensure the quality and precision of the information they provide. And automated systems perform a wide variety of internal data checks that help further assure data consistency and integrity.
To see how this works, consider these standard line items from a major company's annual report and how they may be adjusted by Compustat's analysis:
- Revenue in an annual report normally reflects the accumulated total of all incoming cash, but in a Compustat report, it may be adjusted to distinguish between revenue from actual operations and revenue that resulted from one-time-only events, which are often revealed only in footnotes or supplements.
- Cost of sales may sometimes reflect only direct cash outlays and sometimes include material allocations for many kinds of depreciation. Standardized reporting distinguishes the depreciation elements and lists them separately.
Gross profit, therefore, can be broadly seen as the difference between actual product- and service-related revenue and the actual direct costs of producing those products and services. The gross profit metric can be meaningfully used for a wide range of "apples-to-apples" comparisons.
Compustat financial intelligence is one dimension of the fundamental insight available in the Fidelity Research Center. The standard data presentations and benchmarks can be combined with consensus earnings estimates and standardized company policy scores to help you build a stronger and more nuanced investment strategy.