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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 253797  
Subject: Re: A Blend Torpedoed Date: 11/16/2007 8:15 AM
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Hi Robbie

You mention...
Value Line does not currently allow the user to directly distinguish
between zero long-term debt and null long-term debt, while before 1997,
this distinction was made in the raw data. I have regularized the field
over time by converting nulls to zeros before 1997...


I didn't know this, and it's pretty tragic.
Long term debt is of great interest to me, perhaps more than any other
field, and it's a shame that this is the only solution found to date.
Since pretty much any screen using the field seeks long term debt of zero
or below a certain value or formula, this poses a problem, in that the
nulls will now appear as debt free companies in the early years.

Forgive me for asking: is there any better way to regularize this?
Is there perhaps some other field which would point out which
zeros were nulls in the more recent data, something like that?
For example, if any of the other balance sheet fields or ratio fields
betray the existence of meaningful amounts of debt, one could tag
the zero-debt companies as null-long-term-debt-field records in the
more recent years. (i.e., value not known).

One could make the simplifying assumption that (with the exception of
Annaly) almost any company with significant debt has long term debt.
Some possible ways to corner it might include:
Total assets / common shares outstanding - book value per share,
Total assets - shareholders' equity,
Debt-to-equity ratios,
Total liabilities less total current liabilities,
Total capital less shareholders' equity,
Return on total capital versus return on shareholders' equity, etc.
If any one of these shows clear sign of significant debt, the
LTD field could be tagged as null rather than zero.
One could of course optionally be aggressive and produce an
estimated value, but that's a different question.

Even an imperfect approach might be more useful than erasing the
null-versus-zero distinction in a subset of the data.
Perhaps, because this would inevitably be error prone, it might
be worth exposing as a separate field.

====================================================================
In another more radical approach, the question occurs to me:
how often is the figure actually null? It might be a lot closer
to reality (though more dangerous) to assume that zeroes in more
recent data are all really zero debt companies.
Taking a quick glance at the data, it seems very likely that in recent
editions, in most cases that the Shareholders' Equity value is set, the
Long Term Debt field seems to be meaningful, whether zero or not.
Since these are the most basic figures to pull from a financial
statement, it seems they are the most reliable fields.
For example, even in the "Plus" edition where you would expect the
majority of data holes, I get the following breakdown:
7737 companies total (100%)
2191 companies with LTD=0, but Total Assets and Current Liabilities populated (28% of total)
895 companies with all 3 fields zero (11.5% of total)

Of the 2191 with LTD=0 and the other fields set, only 337 have
an error of over 20% when comparing Current Liabilities to
Total Assets - Shareholders' Equity - Long Term Debt.
Of those, 189 also have a Current Liabilites of zero, which means
that perhaps it is the null field. This leaves only 2% questionable,
many of which may come down to definitions of shareholders' equity
due to other share classes, etc.

So, it seems highly probable to me that if Current Liabilities,
Shareholders' Equity, and Total Assets are all non-zero in the records
from recent years, the zero in the Long Term Debt field is very probably
a real zero. If not, assuming null might be the best course.

Jim
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