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Honda Motor Co. Ltd. (HMC) | Analysis of Goodwill and Intangible Assets

Goodwill and Intangible Assets Accounting Policy

Goodwill

Goodwill, all of which is allocated to Honda's reporting units, is not amortized but is tested for impairment at least annually. Honda performs its annual impairment review of goodwill at March 31, and when a triggering event occurs between annual impairment dates. For the year ended March 31, 2010, 2011 and 2012, Honda did not recognize impairment loss on goodwill.

The carrying amount of goodwill at March 31, 2011 and 2012 was ¥12,008 million and ¥10,426 million, respectively and is included in other assets of the consolidated balance sheets.

Source: Honda Motor Co. Ltd., Annual Report

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Analyst Adjustments: Removal of Goodwill

Honda Motor Co. Ltd., adjustments to financial data

USD $ in millions, translated from JPY ￥

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    Mar 31, 2012 Mar 31, 2011 Mar 31, 2010 Mar 31, 2009 Mar 31, 2008 Mar 31, 2007
  Adjustment to Total Assets
Total assets (as reported) 143,336  139,157  124,990  120,319  125,916  101,961 
Less: Goodwill 127  144  130  123  205  259 
Total assets (adjusted) 143,209  139,012  124,861  120,196  125,712  101,702 
  Adjustment to Honda Motor Co., Ltd. Shareholders’ Equity
Honda Motor Co., Ltd. shareholders’ equity (as reported) 53,566  53,517  46,525  40,795  45,356  37,972 
Less: Goodwill 127  144  130  123  205  259 
Honda Motor Co., Ltd. shareholders’ equity (adjusted) 53,439  53,373  46,395  40,672  45,152  37,713 
  Adjustment to Net Income Attributable To Honda Motor Co., Ltd.
Net income attributable to Honda Motor Co., Ltd. (as reported) 2,573  6,423  2,885  1,395  5,989  5,018 
Add: Impairment loss on goodwill – – – 82  – –
Net income attributable to Honda Motor Co., Ltd. (adjusted) 2,573  6,423  2,885  1,476  5,989  5,018 

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Adjusted Ratios: Removal of Goodwill (Summary)

Honda Motor Co. Ltd., adjusted ratios

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    Mar 31, 2012 Mar 31, 2011 Mar 31, 2010 Mar 31, 2009 Mar 31, 2008 Mar 31, 2007
  Net Profit Margin
Reported net profit margin 2.66% 5.98% 3.13% 1.37% 5.00% 5.34%
Adjusted net profit margin 2.66% 5.98% 3.13% 1.45% 5.00% 5.34%
  Total Asset Turnover
Reported total asset turnover 0.67 0.77 0.74 0.85 0.95 0.92
Adjusted total asset turnover 0.68 0.77 0.74 0.85 0.95 0.92
  Financial Leverage
Reported financial leverage 2.68 2.60 2.69 2.95 2.78 2.69
Adjusted financial leverage 2.68 2.60 2.69 2.96 2.78 2.70
  Return on Equity (ROE)
Reported ROE 4.80% 12.00% 6.20% 3.42% 13.20% 13.21%
Adjusted ROE 4.81% 12.03% 6.22% 3.63% 13.26% 13.30%
  Return on Assets (ROA)
Reported ROA 1.80% 4.62% 2.31% 1.16% 4.76% 4.92%
Adjusted ROA 1.80% 4.62% 2.31% 1.23% 4.76% 4.93%
Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Honda Motor Co. Ltd.'s adjusted net profit margin improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Honda Motor Co. Ltd.'s adjusted total asset turnover improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012.
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.		 Honda Motor Co. Ltd.'s adjusted financial leverage declined from 2010 to 2011 but then increased from 2011 to 2012 not reaching 2010 level.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Honda Motor Co. Ltd.'s adjusted ROE improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Honda Motor Co. Ltd.'s adjusted ROA improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012.

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Adjusted Net Profit Margin

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    Mar 31, 2012 Mar 31, 2011 Mar 31, 2010 Mar 31, 2009 Mar 31, 2008 Mar 31, 2007
  As Reported
Net income attributable to Honda Motor Co., Ltd. (USD $ in millions, translated from JPY ￥) 2,573  6,423  2,885  1,395  5,989  5,018 
Net sales and other operating revenue (USD $ in millions, translated from JPY ￥) 96,704  107,479  92,210  101,916  119,801  93,919 
   
Net profit margin1 2.66% 5.98% 3.13% 1.37% 5.00% 5.34%
  Adjusted for Goodwill
Adjusted net income attributable to Honda Motor Co., Ltd. (USD $ in millions, translated from JPY ￥) 2,573  6,423  2,885  1,476  5,989  5,018 
Net sales and other operating revenue (USD $ in millions, translated from JPY ￥) 96,704  107,479  92,210  101,916  119,801  93,919 
   
Adjusted net profit margin2 2.66% 5.98% 3.13% 1.45% 5.00% 5.34%

2012 Calculations

1 Net profit margin = 100 × Net income attributable to Honda Motor Co., Ltd. ÷ Net sales and other operating revenue
= 100 × 2,573 ÷ 96,704 = 2.66%

2 Adjusted net profit margin = 100 × Adjusted net income attributable to Honda Motor Co., Ltd. ÷ Net sales and other operating revenue
= 100 × 2,573 ÷ 96,704 = 2.66%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Honda Motor Co. Ltd.'s adjusted net profit margin improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012.

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Adjusted Total Asset Turnover

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    Mar 31, 2012 Mar 31, 2011 Mar 31, 2010 Mar 31, 2009 Mar 31, 2008 Mar 31, 2007
  As Reported
Net sales and other operating revenue (USD $ in millions, translated from JPY ￥) 96,704  107,479  92,210  101,916  119,801  93,919 
Total assets (USD $ in millions, translated from JPY ￥) 143,336  139,157  124,990  120,319  125,916  101,961 
   
Total asset turnover1 0.67 0.77 0.74 0.85 0.95 0.92
  Adjusted for Goodwill
Net sales and other operating revenue (USD $ in millions, translated from JPY ￥) 96,704  107,479  92,210  101,916  119,801  93,919 
Adjusted total assets (USD $ in millions, translated from JPY ￥) 143,209  139,012  124,861  120,196  125,712  101,702 
   
Adjusted total asset turnover2 0.68 0.77 0.74 0.85 0.95 0.92

2012 Calculations

1 Total asset turnover = Net sales and other operating revenue ÷ Total assets
= 96,704 ÷ 143,336 = 0.67

2 Adjusted total asset turnover = Net sales and other operating revenue ÷ Adjusted total assets
= 96,704 ÷ 143,209 = 0.68

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Honda Motor Co. Ltd.'s adjusted total asset turnover improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012.

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Adjusted Financial Leverage

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    Mar 31, 2012 Mar 31, 2011 Mar 31, 2010 Mar 31, 2009 Mar 31, 2008 Mar 31, 2007
  As Reported
Total assets (USD $ in millions, translated from JPY ￥) 143,336  139,157  124,990  120,319  125,916  101,961 
Honda Motor Co., Ltd. shareholders’ equity (USD $ in millions, translated from JPY ￥) 53,566  53,517  46,525  40,795  45,356  37,972 
   
Financial leverage1 2.68 2.60 2.69 2.95 2.78 2.69
  Adjusted for Goodwill
Adjusted total assets (USD $ in millions, translated from JPY ￥) 143,209  139,012  124,861  120,196  125,712  101,702 
Adjusted honda Motor Co., Ltd. shareholders’ equity (USD $ in millions, translated from JPY ￥) 53,439  53,373  46,395  40,672  45,152  37,713 
   
Adjusted financial leverage2 2.68 2.60 2.69 2.96 2.78 2.70

2012 Calculations

1 Financial leverage = Total assets ÷ Honda Motor Co., Ltd. shareholders’ equity
= 143,336 ÷ 53,566 = 2.68

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted honda Motor Co., Ltd. shareholders’ equity
= 143,209 ÷ 53,439 = 2.68

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.		 Honda Motor Co. Ltd.'s adjusted financial leverage declined from 2010 to 2011 but then increased from 2011 to 2012 not reaching 2010 level.

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Adjusted Return On Equity (ROE)

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    Mar 31, 2012 Mar 31, 2011 Mar 31, 2010 Mar 31, 2009 Mar 31, 2008 Mar 31, 2007
  As Reported
Net income attributable to Honda Motor Co., Ltd. (USD $ in millions, translated from JPY ￥) 2,573  6,423  2,885  1,395  5,989  5,018 
Honda Motor Co., Ltd. shareholders’ equity (USD $ in millions, translated from JPY ￥) 53,566  53,517  46,525  40,795  45,356  37,972 
   
ROE1 4.80% 12.00% 6.20% 3.42% 13.20% 13.21%
  Adjusted for Goodwill
Adjusted net income attributable to Honda Motor Co., Ltd. (USD $ in millions, translated from JPY ￥) 2,573  6,423  2,885  1,476  5,989  5,018 
Adjusted honda Motor Co., Ltd. shareholders’ equity (USD $ in millions, translated from JPY ￥) 53,439  53,373  46,395  40,672  45,152  37,713 
   
Adjusted ROE2 4.81% 12.03% 6.22% 3.63% 13.26% 13.30%

2012 Calculations

1 ROE = 100 × Net income attributable to Honda Motor Co., Ltd. ÷ Honda Motor Co., Ltd. shareholders’ equity
= 100 × 2,573 ÷ 53,566 = 4.80%

2 Adjusted ROE = 100 × Adjusted net income attributable to Honda Motor Co., Ltd. ÷ Adjusted honda Motor Co., Ltd. shareholders’ equity
= 100 × 2,573 ÷ 53,439 = 5%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Honda Motor Co. Ltd.'s adjusted ROE improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012.

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Adjusted Return On Assets (ROA)

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    Mar 31, 2012 Mar 31, 2011 Mar 31, 2010 Mar 31, 2009 Mar 31, 2008 Mar 31, 2007
  As Reported
Net income attributable to Honda Motor Co., Ltd. (USD $ in millions, translated from JPY ￥) 2,573  6,423  2,885  1,395  5,989  5,018 
Total assets (USD $ in millions, translated from JPY ￥) 143,336  139,157  124,990  120,319  125,916  101,961 
   
ROA1 1.80% 4.62% 2.31% 1.16% 4.76% 4.92%
  Adjusted for Goodwill
Adjusted net income attributable to Honda Motor Co., Ltd. (USD $ in millions, translated from JPY ￥) 2,573  6,423  2,885  1,476  5,989  5,018 
Adjusted total assets (USD $ in millions, translated from JPY ￥) 143,209  139,012  124,861  120,196  125,712  101,702 
   
Adjusted ROA2 1.80% 4.62% 2.31% 1.23% 4.76% 4.93%

2012 Calculations

1 ROA = 100 × Net income attributable to Honda Motor Co., Ltd. ÷ Total assets
= 100 × 2,573 ÷ 143,336 = 1.80%

2 Adjusted ROA = 100 × Adjusted net income attributable to Honda Motor Co., Ltd. ÷ Adjusted total assets
= 100 × 2,573 ÷ 143,209 = 1.80%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Honda Motor Co. Ltd.'s adjusted ROA improved from 2010 to 2011 but then deteriorated significantly from 2011 to 2012.

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