A Wrench in the COGS: An Analysis of the Differences between Cost of Goods Sold as Reported in Compustat and in the Financial Statements

Abstract

SYNOPSIS This paper explores the differences between cost of goods sold (COGS) and gross margin (GM) as reported in Compustat and in corporate financial statements between 2008 and 2011. We find that, on average, Compustat's COGS is 7.5 percent lower and Compustat's GM is 14.3 percent higher than the amounts reported in the financial statements. We identify one specific Compustat adjustment procedure that accounts for most of this difference, the adjustment for depreciation, thereby providing an important contribution to extant literature dealing with differences between Compustat and 10-K data. Finally, we provide a correction that will allow future researchers to use data within Compustat to adjust Compustat's COGS and GM variables to more closely approximate the 10-K amounts.