.Analysis of Investments
Difficulty: Advanced
Investment Accounting Policy
Cash Equivalents
All highly-liquid investments with a remaining maturity of three months or less at the time of purchase are considered to be cash equivalents. Cash equivalents consist primarily of investments in institutional money market funds.
Investments
All of Applied's investments, except equity investments held in privately-held companies, are classified as available-for-sale at the respective balance sheet dates. Investments classified as available-for-sale are recorded at fair value based upon quoted market prices, and any temporary difference between the cost and fair value of an investment is presented as a separate component of accumulated other comprehensive income (loss). The specific identification method is used to determine the gains and losses on investments. Interest earned on cash and investments, as well as realized gains and losses on sale of securities, are included in interest and other income, net in the accompanying Consolidated Statements of Operations.
Equity investments in privately-held companies are generally accounted for under the cost method of accounting and are periodically assessed for other-than-temporary impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred.
Source: Applied Materials Inc., Annual Report
Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities
Applied Materials Inc., adjustment to Net Income
USD $ in millions
Adjusted Ratios: Mark to Market Available-for-sale Securities (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 | % | % | % | % | % | % |
| 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 ROE | A profitability ratio calculated as adjusted net income divided by 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 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: Mark to Market Available-for-sale Securities | |||||||
| | 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 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: Mark to Market Available-for-sale Securities | |||||||
| | Adjusted net income (USD $ in millions) | ||||||
| | Stockholders’ equity (USD $ in millions) | ||||||
| | Adjusted ROE2 | % | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net income ÷ Stockholders’ equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by 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: Mark to Market Available-for-sale Securities | |||||||
| | Adjusted net income (USD $ in millions) | ||||||
| | Total assets (USD $ in millions) | ||||||
| | Adjusted ROA2 | % | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net income ÷ Total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by total assets. | Applied Materials Inc.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017. |
