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GuruFocus has detected 7 Warning Signs with Schlumberger Ltd \$SLB.
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Schlumberger Ltd (NYSE:SLB)
Gross Profit
\$3,900 Mil (TTM As of Dec. 2016)

Schlumberger Ltd's gross profit for the three months ended in Dec. 2016 was \$961 Mil. Schlumberger Ltd's gross profit for the trailing twelve months (TTM) ended in Dec. 2016 was \$3,900 Mil.

Gross Margin is calculated as gross profit divided by its revenue. Schlumberger Ltd's gross profit for the three months ended in Dec. 2016 was \$961 Mil. Schlumberger Ltd's revenue for the three months ended in Dec. 2016 was \$7,154 Mil. Therefore, Schlumberger Ltd's Gross Margin for the quarter that ended in Dec. 2016 was 13.43%.

Schlumberger Ltd had a gross margin of 13.43% for the quarter that ended in Dec. 2016 => No sustainable competitive advantage

During the past 13 years, the highest Gross Margin of Schlumberger Ltd was 34.70%. The lowest was 13.92%. And the median was 23.71%.

Warning Sign:

Schlumberger Ltd gross margin has been in long term decline. The average rate of decline per year is -6.4%.

Definition

Gross Profit is the different between the sale prices and the cost of buying or producing the goods.

Schlumberger Ltd's Gross Profit for the fiscal year that ended in Dec. 2016 is calculated as

 Gross Profit (A: Dec. 2016 ) = Revenue - Cost of Goods Sold = 28010 - 24110 = 3,900

Schlumberger Ltd's Gross Profit for the quarter that ended in Dec. 2016 is calculated as

 Gross Profit (Q: Dec. 2016 ) = Revenue - Cost of Goods Sold = 7154 - 6193 = 961

Schlumberger Ltd Gross Profit for the trailing twelve months (TTM) ended in Dec. 2016 was 1105 (Mar. 2016 ) + 903 (Jun. 2016 ) + 931 (Sep. 2016 ) + 961 (Dec. 2016 ) = \$3,900 Mil.

Gross Profit is the numerator in the calculation of Gross Margin:

Schlumberger Ltd's Gross Margin for the quarter that ended in Dec. 2016 is calculated as

 Gross Margin (Q: Dec. 2016 ) = Gross Profit (Q: Dec. 2016 ) / Revenue (Q: Dec. 2016 ) = (Revenue - Cost of Goods Sold) / Revenue = 961 / 7154 = 13.43 %

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

A positive Gross Profit is only the first step for a company to make a net profit. The gross profit needs to be big enough to also cover related labor, equipment, rental, marketing/advertising, research and development and a lot of other costs in selling the products.

Explanation

Warren Buffett believes that firms with excellent long term economics tend to have consistently higher margins.

Durable competitive advantage creates a high Gross Margin because of the freedom to price in excess of cost. Companies can be categorized by their Gross Margin

1. Greater than 40% = Durable competitive advantage
2. Less than 40% = Competition eroding margins
3. Less than 20% = no sustainable competitive advantage
Consistency of Gross Margin is key

Schlumberger Ltd had a gross margin of 13.43% for the quarter that ended in Dec. 2016 => No sustainable competitive advantage

Related Terms

Historical Data

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

Schlumberger Ltd Annual Data

 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Gross_Profit 8,226 8,618 5,730 6,874 7,907 9,018 11,128 11,473 7,390 3,900

Schlumberger Ltd Quarterly Data

 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Gross_Profit 3,036 3,022 2,201 1,921 1,734 1,532 1,105 903 931 961
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