Home Depot Inc. (HD) | Goodwill and Intangible Assets

Goodwill and Intangible Assets Accounting Policy

Goodwill represents the excess of purchase price over the fair value of net assets acquired. Home Depot does not amortize goodwill but does assess the recoverability of goodwill in the third quarter of each fiscal year, or more often if indicators warrant, by determining whether the fair value of each reporting unit supports its carrying value. Home Depot assesses qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments. During fiscal 2012, for all reporting units other than the China reporting unit, Home Depot used qualitative factors to determine that its goodwill balances for each reporting unit were not impaired. For the China reporting unit, Home Depot recorded a charge of $97 million to impair all of the goodwill associated with that reporting unit in fiscal 2012. Impairment charges related to the remaining goodwill were not material for fiscal 2012, 2011 or 2010.

Home Depot amortizes the cost of other intangible assets over their estimated useful lives, which range up to ten years, unless such lives are deemed indefinite. Intangible assets with indefinite lives are tested in the third quarter of each fiscal year for impairment, or more often if indicators warrant. Impairment charges related to other intangible assets were not material for fiscal 2012, 2011 or 2010.

Source: Home Depot Inc., Annual Report

Analyst Adjustments: Removal of Goodwill

Home Depot Inc., adjustments to financial data

USD $ in millions

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
Adjustment to Total Assets
Total assets (as reported)	41,084	40,518	40,125	40,877	41,164	44,324
Less: Goodwill	1,170	1,120	1,187	1,171	1,134	1,209
Total assets (adjusted)	39,914	39,398	38,938	39,706	40,030	43,115
Adjustment to Stockholders’ Equity
Stockholders’ equity (as reported)	17,777	17,898	18,889	19,393	17,777	17,714
Less: Goodwill	1,170	1,120	1,187	1,171	1,134	1,209
Stockholders’ equity (adjusted)	16,607	16,778	17,702	18,222	16,643	16,505
Adjustment to Net Earnings
Net earnings (as reported)	4,535	3,883	3,338	2,661	2,260	4,395
Add: Goodwill impairment	97	–	–	–	–	–
Net earnings (adjusted)	4,632	3,883	3,338	2,661	2,260	4,395

Adjusted Ratios: Removal of Goodwill (Summary)

Home Depot Inc., adjusted ratios

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
Net Profit Margin
Reported net profit margin	6.07%	5.52%	4.91%	4.02%	3.17%	5.68%
Adjusted net profit margin	6.20%	5.52%	4.91%	4.02%	3.17%	5.68%
Total Asset Turnover
Reported total asset turnover	1.82	1.74	1.69	1.62	1.73	1.75
Adjusted total asset turnover	1.87	1.79	1.75	1.67	1.78	1.79
Financial Leverage
Reported financial leverage	2.31	2.26	2.12	2.11	2.32	2.50
Adjusted financial leverage	2.40	2.35	2.20	2.18	2.41	2.61
Return on Equity (ROE)
Reported ROE	25.51%	21.70%	17.67%	13.72%	12.71%	24.81%
Adjusted ROE	27.89%	23.14%	18.86%	14.60%	13.58%	26.63%
Return on Assets (ROA)
Reported ROA	11.04%	9.58%	8.32%	6.51%	5.49%	9.92%
Adjusted ROA	11.60%	9.86%	8.57%	6.70%	5.65%	10.19%

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Home Depot Inc.'s adjusted net profit margin improved from 2011 to 2012 and from 2012 to 2013.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Home Depot Inc.'s adjusted total asset turnover improved from 2011 to 2012 and from 2012 to 2013.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Home Depot Inc.'s adjusted financial leverage increased from 2011 to 2012 and from 2012 to 2013.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	Home Depot Inc.'s adjusted ROE improved from 2011 to 2012 and from 2012 to 2013.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Home Depot Inc.'s adjusted ROA improved from 2011 to 2012 and from 2012 to 2013.

Adjusted Net Profit Margin

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Net earnings (USD $ in millions)	4,535	3,883	3,338	2,661	2,260	4,395
Net sales (USD $ in millions)	74,754	70,395	67,997	66,176	71,288	77,349

Net profit margin¹	6.07%	5.52%	4.91%	4.02%	3.17%	5.68%
Adjusted for Goodwill
Adjusted net earnings (USD $ in millions)	4,632	3,883	3,338	2,661	2,260	4,395
Net sales (USD $ in millions)	74,754	70,395	67,997	66,176	71,288	77,349

Adjusted net profit margin²	6.20%	5.52%	4.91%	4.02%	3.17%	5.68%

2013 Calculations

¹ Net profit margin = 100 × Net earnings ÷ Net sales
= 100 × 4,535 ÷ 74,754 = 6.07%

² Adjusted net profit margin = 100 × Adjusted net earnings ÷ Net sales
= 100 × 4,632 ÷ 74,754 = 6.20%

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Home Depot Inc.'s adjusted net profit margin improved from 2011 to 2012 and from 2012 to 2013.

Adjusted Total Asset Turnover

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Net sales (USD $ in millions)	74,754	70,395	67,997	66,176	71,288	77,349
Total assets (USD $ in millions)	41,084	40,518	40,125	40,877	41,164	44,324

Total asset turnover¹	1.82	1.74	1.69	1.62	1.73	1.75
Adjusted for Goodwill
Net sales (USD $ in millions)	74,754	70,395	67,997	66,176	71,288	77,349
Adjusted total assets (USD $ in millions)	39,914	39,398	38,938	39,706	40,030	43,115

Adjusted total asset turnover²	1.87	1.79	1.75	1.67	1.78	1.79

2013 Calculations

¹ Total asset turnover = Net sales ÷ Total assets
= 74,754 ÷ 41,084 = 1.82

² Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 74,754 ÷ 39,914 = 1.87

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Home Depot Inc.'s adjusted total asset turnover improved from 2011 to 2012 and from 2012 to 2013.

Adjusted Financial Leverage

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Total assets (USD $ in millions)	41,084	40,518	40,125	40,877	41,164	44,324
Stockholders’ equity (USD $ in millions)	17,777	17,898	18,889	19,393	17,777	17,714

Financial leverage¹	2.31	2.26	2.12	2.11	2.32	2.50
Adjusted for Goodwill
Adjusted total assets (USD $ in millions)	39,914	39,398	38,938	39,706	40,030	43,115
Adjusted stockholders’ equity (USD $ in millions)	16,607	16,778	17,702	18,222	16,643	16,505

Adjusted financial leverage²	2.40	2.35	2.20	2.18	2.41	2.61

2013 Calculations

¹ Financial leverage = Total assets ÷ Stockholders’ equity
= 41,084 ÷ 17,777 = 2.31

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= 39,914 ÷ 16,607 = 2.40

Ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Home Depot Inc.'s adjusted financial leverage increased from 2011 to 2012 and from 2012 to 2013.

Adjusted Return On Equity (ROE)

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Net earnings (USD $ in millions)	4,535	3,883	3,338	2,661	2,260	4,395
Stockholders’ equity (USD $ in millions)	17,777	17,898	18,889	19,393	17,777	17,714

ROE¹	25.51%	21.70%	17.67%	13.72%	12.71%	24.81%
Adjusted for Goodwill
Adjusted net earnings (USD $ in millions)	4,632	3,883	3,338	2,661	2,260	4,395
Adjusted stockholders’ equity (USD $ in millions)	16,607	16,778	17,702	18,222	16,643	16,505

Adjusted ROE²	27.89%	23.14%	18.86%	14.60%	13.58%	26.63%

2013 Calculations

¹ ROE = 100 × Net earnings ÷ Stockholders’ equity
= 100 × 4,535 ÷ 17,777 = 25.51%

² Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted stockholders’ equity
= 100 × 4,632 ÷ 16,607 = 28%

Ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	Home Depot Inc.'s adjusted ROE improved from 2011 to 2012 and from 2012 to 2013.

Adjusted Return On Assets (ROA)

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Net earnings (USD $ in millions)	4,535	3,883	3,338	2,661	2,260	4,395
Total assets (USD $ in millions)	41,084	40,518	40,125	40,877	41,164	44,324

ROA¹	11.04%	9.58%	8.32%	6.51%	5.49%	9.92%
Adjusted for Goodwill
Adjusted net earnings (USD $ in millions)	4,632	3,883	3,338	2,661	2,260	4,395
Adjusted total assets (USD $ in millions)	39,914	39,398	38,938	39,706	40,030	43,115

Adjusted ROA²	11.60%	9.86%	8.57%	6.70%	5.65%	10.19%

2013 Calculations

¹ ROA = 100 × Net earnings ÷ Total assets
= 100 × 4,535 ÷ 41,084 = 11.04%

² Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × 4,632 ÷ 39,914 = 11.60%

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Home Depot Inc.'s adjusted ROA improved from 2011 to 2012 and from 2012 to 2013.