Price data adjustments & Compustat

From the moment a company is listed at a stock exchange changes in these listings can occur and are announced by the companies in press releases and such. Some of these changes include stock-splits or the issue of additional stocks. There can be many possible reasons for doing this.
Regardless of the reasons, these changes have effect on the value of stocks. As I mentioned in the previous post Compustat delivers the original price data through it’s annual, monthly and daily financial databases. These databases also include adjustment factor variables that makes it possible to adjust the price data for calculations. An overview of the adjustment factor variables is available in the Compustat manual “Understanding the data” on page 91 (Chapter 6).
If you have access to Compustat through Wharton you can find the manual there at: > Support > Compustat manuals and overviews.

I will give an example here. One of the variables in de Compustat North America Fundamentals Annual database is CEQL (Common Equity Liquidation Value). This item represents the common shareholders’ interest in a company in the event of liquidation of company assets. Common equity is adjusted by the preferred stockholders’ legal claims against the company. The CEQL data is rounded.
The calculated variable CEQL can be recreated by downloading and multiplying the variables Book Value Per Share (BKVLPS) and Common Shares Outstanding (CSHO). To get correct numbers you will have to use the adjustment factor variable Adjustment Factor (Company) – Cumulative by Ex-Date (AJEX) in this case. With regard to the adjustment factor it is important to remember that, in general, per share items are divided and share items are multiplied by the adjustment factor. Example:

In column L you see the Adjustment Factor for each year of data. If nothing changes the value is 1. If, for instance, the value is 0.1 this means there was a small adjustment. Columns T, U and V list the following variables from the Compustat database BKVLPS, CSHO and CEQL. Column W lists the Calc(ulated) value of CEQL using just the variables BKVLPS and CSHO.
For some years for the example Citigroup the adjustment factor is 0.1 which means that the calculation needs to be changed. The adjusted calculated CEQL is: ((BKVLPS/AJEX)*(CSHO*AJEX)). See column X in the example.

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