--- tags: reddit title: PSA - Don't trust your stock screener blindly --- # PSA: Using a Stock Screener? It Might Be Wrong! Hola peeps! So we've been building the [stocks series](https://indiainvestments.gitbook.io/content/stocks/) on [our wiki](https://www.reddit.com/r/IndiaInvestments/comments/le1buv/welcome_to_the_subreddit_and_new_changes/) on _how to actually evaluate a business for investment_ (aka how to do _due diligence on a business_). Over the past month, we've learned a few interesting and unexpected aspects that we feel everyone should know about. You might've come across screener websites such as [screener.in](https://www.screener.in) and [MorningStar India](https://www.morningstar.in/default.aspx) during your analysis and assumed that using the financial metrics and ratios mentioned on their website is a good idea. You might take the numbers presented at face value and see an opportunity or a red-flag. However, in reality, it could just be a calculation error or usage of incorrect formula. Sometimes, the results can be hilariously wrong. --- To prove that we're not exaggerating, check out the following: - The **Gross Profit Margin** on [screener.in](https://www.screener.in) for all IT companies, including Tata Consultancy Services (TCS) is either 100% or close to 100%. ![](https://i.imgur.com/9m8adUs.png) This basically implies that TCS has nearly ₹0 worth of expenses and all their sales is translated into gross profit. For those who're unfamiliar, gross profit is the operational sales of a company minus its costs of goods sold (COGS). Yeah, TCS doesn't sell goods but it does have significant employee expenses. Since a services company like TCS doesn't have goods in the traditional sense, we have to use their employee expenses to arrive at a meaningful gross profit margin figure. To say that gross profit margin of TCS is 100% is simply incorrect. - **Return on Capital Invested (ROIC)** is also wildly incorrect on [screener.in](https://www.screener.in) and [MorningStar India](https://www.morningstar.in/default.aspx). Using Abbott India (NSE: ABBOTINDIA) as an example, the ROIC of Abbott India on screener.in is mentioned as 22.90% but in reality, it is closer to 138%. ![](https://i.imgur.com/HY5mBDN.png) Note that the ROIC of Sanofi (NSE: SANOFI) is mentioned as 31.54% on screener but in reality, it is closer to 41%. Although Abbott has a much higher ROIC than Sanofi, screener.in paints a different picture altogether. Calling it misleading wouldn't be incorrect. Morning Star seems to have made the same mistake. ![](https://i.imgur.com/hVkU2vF.png) You're probably interested about why Screener and Morning Star seem to have made this mistake. One of the components in the calculation of ROIC is Capital Invested and it excludes all non-operational assets that a company has. Cash and Cash Equivalents are generally not considered operational assets but Screener and Morning Star don't seem to consider this factor for some reason. Since they end up including Cash and Cash Equivalents in Capital Invested, ROIC is incorrectly penalized for companies with high amounts of cash on hand. ROIC is also a bit hard to calculate and get right so this may have been another factor for inaccuracy. Some screeners don't even include ROIC for this reason. Kudos to [Tijori Finance](https://tijorifinance.com) for presenting a relatively correct calculation of ROIC for Abbott India. ![](https://i.imgur.com/FLsFMCW.png) For more information about these ratios and how we calculated them, check out [our article on profitability ratios](https://indiainvestments.gitbook.io/content/stocks/financial-metrics-and-ratios/profitability) on our wiki. **NOTE: We've only used TCS, Abbott, and Sanofi here as examples. We DO NOT recommend investing in either of these companies based on the examples presented here. These companies were chosen randomly and purely for educational purposes. We have no opinions on either of these companies.** --- We've reached out to the teams behind these screeners and have pointed out these issues. They've assured us that they're looking into this. The next time you're doing due diligence on a company, cross-check all calculations yourself. Don't rely on ready-made screeners, don't trust the numbers you see on a screener that's been prepared by someone else. If you've not computed it from the annual reports yourself, it might be wrong. _Trust, but verify_. We thought we knew how to do due diligence, but after we started writing a guide for others, it now seems we've learned new aspects that we weren't aware of. As they say, _the best way to learn is to teach others_. Interested in learning and skilling up on various aspects of properly doing due diligence? Let's join forces! You'd uncover interesting gems, and surely get better at doing due diligence if you start writing chapters on _how to do due diligence_. [How you can start contributing](https://indiainvestments.gitbook.io/content/contributors/how-can-i-start-contributing). [Reach out to us on Discord](https://discord.gg/6FvYcma7Qz).