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GuruFocus has detected 3 Warning Signs with Halliburton Co \$HAL.
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Halliburton Co (NYSE:HAL)
Gross Profit
\$864 Mil (TTM As of Dec. 2016)

Halliburton Co's gross profit for the three months ended in Dec. 2016 was \$317 Mil. Halliburton Co's gross profit for the trailing twelve months (TTM) ended in Dec. 2016 was \$864 Mil.

Gross Margin is calculated as gross profit divided by its revenue. Halliburton Co's gross profit for the three months ended in Dec. 2016 was \$317 Mil. Halliburton Co's revenue for the three months ended in Dec. 2016 was \$4,021 Mil. Therefore, Halliburton Co's Gross Margin for the quarter that ended in Dec. 2016 was 7.88%.

Halliburton Co had a gross margin of 7.88% for the quarter that ended in Dec. 2016 => No sustainable competitive advantage

During the past 13 years, the highest Gross Margin of Halliburton Co was 24.50%. The lowest was 5.44%. And the median was 16.73%.

Warning Sign:

Halliburton Co gross margin has been in long term decline. The average rate of decline per year is -20%.

Definition

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

Halliburton Co'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 = 15887 - 15023 = 864

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

 Gross Profit (Q: Dec. 2016 ) = Revenue - Cost of Goods Sold = 4021 - 3704 = 317

Halliburton Co Gross Profit for the trailing twelve months (TTM) ended in Dec. 2016 was 273 (Mar. 2016 ) + 103 (Jun. 2016 ) + 171 (Sep. 2016 ) + 317 (Dec. 2016 ) = \$864 Mil.

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

Halliburton Co'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 = 317 / 4021 = 7.88 %

* 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

Halliburton Co had a gross margin of 7.88% 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.

Halliburton Co Annual Data

 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Gross_Profit 3,739 4,230 2,196 3,238 5,018 4,734 4,471 5,536 2,520 864

Halliburton Co Quarterly Data

 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Gross_Profit 1,708 1,500 765 686 543 526 273 103 171 317
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