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Analysis of Goodwill and Intangible Assets
Difficulty: Advanced
- Goodwill and Intangible Assets Accounting Policy
- Goodwill and Intangible Assets Disclosure
- Analyst Adjustments: Removal of Goodwill
- Adjusted Ratios: Removal of Goodwill (Summary)
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Goodwill and Intangible Assets Accounting Policy
Long-Lived Assets, Goodwill and Other Acquired Intangible Assets
Alphabet reviews property and equipment, long-term prepayments and intangible assets, excluding goodwill, for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. Alphabet measures recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets or the asset group are expected to generate. If the carrying value of the assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value of the asset exceeds its fair value. Intangible asset impairments were not material in 2015, 2016, or 2017.
Alphabet allocates goodwill to reporting units based on the expected benefit from the business combination. Alphabet evaluate the reporting units when changes in the operating structure occur, and if necessary, reassign goodwill using a relative fair value allocation approach. Alphabet test the goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. No goodwill impairment occurred in 2015, 2016, or 2017.
Intangible assets with definite lives are amortized over their estimated useful lives. Alphabet amortizes intangible assets on a straight-line basis with definite lives over periods ranging from one to twelve years.
Source: 10-K (filing date: 2018-02-06).
Goodwill and Intangible Assets Disclosure
Alphabet Inc., Statement of Financial Position, Goodwill and Intangible Assets
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Based on: 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-09), 10-K (filing date: 2014-02-12).
| Item | Description | The company |
|---|---|---|
| Purchased intangible assets, net carrying value | Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. | Alphabet Inc.’s purchased intangible assets, net carrying value declined from 2015 to 2016 and from 2016 to 2017. |
| Goodwill | Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. | Alphabet Inc.’s goodwill increased from 2015 to 2016 and from 2016 to 2017. |
| Goodwill and other intangible assets | Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. | Alphabet Inc.’s goodwill and other intangible assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
Analyst Adjustments: Removal of Goodwill
Alphabet Inc., adjustments to financial data
USD $ in millions
Based on: 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-09), 10-K (filing date: 2014-02-12).
Alphabet Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Goodwill (Summary)
Alphabet Inc., adjusted ratios
Based on: 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-09), 10-K (filing date: 2014-02-12).
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Alphabet Inc.’s adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017. |
| 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. |
Alphabet Inc.’s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Alphabet Inc.’s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Alphabet Inc.’s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Alphabet Inc., Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-09), 10-K (filing date: 2014-02-12).
2017 Calculations
1 Total asset turnover = Revenues ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Alphabet Inc.’s adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-09), 10-K (filing date: 2014-02-12).
2017 Calculations
1 Financial leverage = Total assets ÷ Stockholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= ÷ =
| 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. |
Alphabet Inc.’s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-09), 10-K (filing date: 2014-02-12).
2017 Calculations
1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Net income ÷ Adjusted stockholders’ equity
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Alphabet Inc.’s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-09), 10-K (filing date: 2014-02-12).
2017 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Alphabet Inc.’s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
