Microsoft Excel LibreOffice Calc

Automatic Data Processing Inc. (NASDAQ:ADP)

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Analysis of Investments

Advanced level


Accounting Policy on Investments

All of ADP’s marketable securities are considered to be “available-for-sale” and, accordingly, are carried on the Consolidated Balance Sheets at fair value. Unrealized gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of accumulated other comprehensive income (loss) on the Consolidated Balance Sheets until realized. Realized gains and losses from the sale of available-for-sale securities are determined on an aggregate approach basis and are included in other (income)/expense, net on the Statements of Consolidated Earnings.

If the fair value of an available-for-sale debt security is below its amortized cost, ADP assesses whether it intends to sell the security or if it is more likely than not ADP will be required to sell the security before recovery. If either of those two conditions is met, ADP would recognize a charge in earnings equal to the entire difference between the security’s amortized cost basis and its fair value. If ADP does not intend to sell a security or it is not more likely than not that it will be required to sell the security before recovery, the unrealized loss is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in accumulated other comprehensive income (loss).

Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective-interest method. Dividend and interest income are recognized when earned.

Source: 10-K (filing date: 2019-08-09).


Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities

Automatic Data Processing Inc., adjustment to net earnings

US$ in thousands

Microsoft Excel LibreOffice Calc
12 months ended Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
Net earnings (as reported)
Add: Unrealized net gains (losses) on available-for-sale securities, net of tax
Less: Reclassification of net (gains) losses on available-for-sale securities to net earnings, net of tax
Net earnings (adjusted)

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).


Adjusted Profitability Ratios: Mark to Market Available-for-sale Securities (Summary)

Automatic Data Processing Inc., adjusted profitability ratios

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
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

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Automatic Data Processing Inc.’s adjusted net profit margin ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders’ equity. Automatic Data Processing Inc.’s adjusted ROE improved from 2017 to 2018 and from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. Automatic Data Processing Inc.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Automatic Data Processing Inc., Profitability Ratios: Reported vs. Adjusted


Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net earnings
Revenues
Profitability Ratio
Net profit margin1
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in thousands)
Adjusted net earnings
Revenues
Profitability Ratio
Adjusted net profit margin2

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

2019 Calculations

1 Net profit margin = 100 × Net earnings ÷ Revenues
= 100 × ÷ =

2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Revenues
= 100 × ÷ =

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Automatic Data Processing Inc.’s adjusted net profit margin ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net earnings
Stockholders’ equity
Profitability Ratio
ROE1
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in thousands)
Adjusted net earnings
Stockholders’ equity
Profitability Ratio
Adjusted ROE2

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

2019 Calculations

1 ROE = 100 × Net earnings ÷ Stockholders’ equity
= 100 × ÷ =

2 Adjusted ROE = 100 × Adjusted net earnings ÷ Stockholders’ equity
= 100 × ÷ =

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders’ equity. Automatic Data Processing Inc.’s adjusted ROE improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net earnings
Total assets
Profitability Ratio
ROA1
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in thousands)
Adjusted net earnings
Total assets
Profitability Ratio
Adjusted ROA2

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

2019 Calculations

1 ROA = 100 × Net earnings ÷ Total assets
= 100 × ÷ =

2 Adjusted ROA = 100 × Adjusted net earnings ÷ Total assets
= 100 × ÷ =

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. Automatic Data Processing Inc.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.