.Analysis of Goodwill and Intangible Assets
Difficulty: Advanced
Goodwill and Intangible Assets Accounting Policy
Goodwill and indefinite-lived assets are not amortized, but are reviewed for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Purchased technology and other intangible assets are presented at cost, net of accumulated amortization, and are amortized over their estimated useful lives of 1 to 15 years using the straight-line method.
Source: Applied Materials Inc., Annual Report
Goodwill and Intangible Assets Disclosure
Applied Materials Inc., Statement of Financial Position, Goodwill and Intangible Assets
USD $ in millions
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| | Goodwill | ||||||
| | Purchased technology | ||||||
| | Other intangible assets | ||||||
| | Finite-lived intangible assets, gross carrying amount | ||||||
| | Accumulated amortization | ||||||
| | Finite-lived intangible assets, carrying amount | ||||||
| | Indefinite-lived intangible assets | ||||||
| | Intangible assets | ||||||
| | Goodwill, purchased technology and other intangible assets |
Source: Based on data from Applied Materials Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Goodwill | Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions. | Applied Materials Inc.'s goodwill increased from 2015 to 2016 and from 2016 to 2017. |
| Intangible assets | Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. | Applied Materials Inc.'s intangible assets declined from 2015 to 2016 and from 2016 to 2017. |
| Goodwill, purchased technology 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. | Applied Materials Inc.'s goodwill, purchased technology and other intangible assets declined from 2015 to 2016 and from 2016 to 2017. |
Analyst Adjustments: Removal of Goodwill
Applied Materials Inc., adjustments to financial data
USD $ in millions
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| Adjustment to Total Assets | |||||||
| | Total assets (as reported) | ||||||
| | Less: Goodwill | ||||||
| | Total assets (adjusted) | ||||||
| Adjustment to Stockholders’ Equity | |||||||
| | Stockholders’ equity (as reported) | ||||||
| | Less: Goodwill | ||||||
| | Stockholders’ equity (adjusted) | ||||||
| Adjustment to Net Income | |||||||
| | Net income (as reported) | ||||||
| | Add: Impairment of goodwill | ||||||
| | Net income (adjusted) | ||||||
Adjusted Ratios: Removal of Goodwill (Summary)
Applied Materials Inc., adjusted ratios
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| Net Profit Margin | |||||||
| | Reported net profit margin | % | % | % | % | % | % |
| | Adjusted net profit margin | % | % | % | % | % | % |
| Total Asset Turnover | |||||||
| | Reported total asset turnover | ||||||
| | Adjusted total asset turnover | ||||||
| Financial Leverage | |||||||
| | Reported financial leverage | ||||||
| | Adjusted financial leverage | ||||||
| Return on Equity (ROE) | |||||||
| | Reported ROE | % | % | % | % | % | % |
| | Adjusted ROE | % | % | % | % | % | % |
| Return on Assets (ROA) | |||||||
| | Reported ROA | % | % | % | % | % | % |
| | Adjusted ROA | % | % | % | % | % | % |
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | Applied Materials Inc.'s adjusted net profit margin improved from 2015 to 2016 and from 2016 to 2017. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Applied Materials Inc.'s adjusted total asset turnover improved from 2015 to 2016 but then slightly deteriorated 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. |
Applied Materials Inc.'s adjusted financial leverage increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Applied Materials Inc.'s adjusted ROE improved from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Applied Materials Inc.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Net Profit Margin
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| As Reported | |||||||
| | Net income (USD $ in millions) | ||||||
| | Net sales (USD $ in millions) | ||||||
| | Net profit margin1 | % | % | % | % | % | % |
| Adjusted for Goodwill | |||||||
| | Adjusted net income (USD $ in millions) | ||||||
| | Net sales (USD $ in millions) | ||||||
| | Adjusted net profit margin2 | % | % | % | % | % | % |
2017 Calculations
1 Net profit margin = 100 × Net income ÷ Net sales
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net income ÷ Net sales
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | Applied Materials Inc.'s adjusted net profit margin improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Total Asset Turnover
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| As Reported | |||||||
| | Net sales (USD $ in millions) | ||||||
| | Total assets (USD $ in millions) | ||||||
| | Total asset turnover1 | ||||||
| Adjusted for Goodwill | |||||||
| | Net sales (USD $ in millions) | ||||||
| | Adjusted total assets (USD $ in millions) | ||||||
| | Adjusted total asset turnover2 | ||||||
2017 Calculations
1 Total asset turnover = Net sales ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Applied Materials Inc.'s adjusted total asset turnover improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
Adjusted Financial Leverage
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| As Reported | |||||||
| | Total assets (USD $ in millions) | ||||||
| | Stockholders’ equity (USD $ in millions) | ||||||
| | Financial leverage1 | ||||||
| Adjusted for Goodwill | |||||||
| | Adjusted total assets (USD $ in millions) | ||||||
| | Adjusted stockholders’ equity (USD $ in millions) | ||||||
| | Adjusted financial leverage2 | ||||||
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. |
Applied Materials Inc.'s adjusted financial leverage increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
Adjusted Return on Equity (ROE)
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| As Reported | |||||||
| | Net income (USD $ in millions) | ||||||
| | Stockholders’ equity (USD $ in millions) | ||||||
| | ROE1 | % | % | % | % | % | % |
| Adjusted for Goodwill | |||||||
| | Adjusted net income (USD $ in millions) | ||||||
| | Adjusted stockholders’ equity (USD $ in millions) | ||||||
| | Adjusted ROE2 | % | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted stockholders’ equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Applied Materials Inc.'s adjusted ROE improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Assets (ROA)
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| As Reported | |||||||
| | Net income (USD $ in millions) | ||||||
| | Total assets (USD $ in millions) | ||||||
| | ROA1 | % | % | % | % | % | % |
| Adjusted for Goodwill | |||||||
| | Adjusted net income (USD $ in millions) | ||||||
| | Adjusted total assets (USD $ in millions) | ||||||
| | Adjusted ROA2 | % | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Applied Materials Inc.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017. |
