.Analysis of Investments
Difficulty: Advanced
Investment Accounting Policy
Cash and Cash Equivalents
Highly liquid investment securities with a maturity of ninety days or less at the time of purchase are considered cash equivalents. The fair value of ADP's cash and cash equivalents approximates carrying value.
Corporate Investments and Funds Held for Clients
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 a specific-identification basis and are included in other income, 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: Automatic Data Processing Inc., Annual Report
Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities
Automatic Data Processing Inc., adjustment to Net Earnings
USD $ in thousands
| 12 months ended | Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 2012 | |
|---|---|---|---|---|---|---|---|
| | 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) |
Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)
Automatic Data Processing Inc., adjusted ratios
| Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 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. | Automatic Data Processing Inc.'s adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by shareholders' equity. | Automatic Data Processing Inc.'s adjusted ROE improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by total assets. | Automatic Data Processing Inc.'s adjusted ROA deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017. |
Adjusted Net Profit Margin
| Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 2012 | ||
|---|---|---|---|---|---|---|---|
| As Reported | |||||||
| | Net earnings (USD $ in thousands) | ||||||
| | Revenues (USD $ in thousands) | ||||||
| | Net profit margin1 | % | % | % | % | % | % |
| Adjusted: Mark to Market Available-for-sale Securities | |||||||
| | Adjusted net earnings (USD $ in thousands) | ||||||
| | Revenues (USD $ in thousands) | ||||||
| | Adjusted net profit margin2 | % | % | % | % | % | % |
2017 Calculations
1 Net profit margin = 100 × Net earnings ÷ Revenues
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Revenues
= 100 × ÷ = %
| 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 improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Return on Equity (ROE)
| Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 2012 | ||
|---|---|---|---|---|---|---|---|
| As Reported | |||||||
| | Net earnings (USD $ in thousands) | ||||||
| | Stockholders' equity (USD $ in thousands) | ||||||
| | ROE1 | % | % | % | % | % | % |
| Adjusted: Mark to Market Available-for-sale Securities | |||||||
| | Adjusted net earnings (USD $ in thousands) | ||||||
| | Stockholders' equity (USD $ in thousands) | ||||||
| | Adjusted ROE2 | % | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net earnings ÷ Stockholders' equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net earnings ÷ Stockholders' equity
= 100 × ÷ = %
| 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 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
Adjusted Return on Assets (ROA)
| Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 2012 | ||
|---|---|---|---|---|---|---|---|
| As Reported | |||||||
| | Net earnings (USD $ in thousands) | ||||||
| | Total assets (USD $ in thousands) | ||||||
| | ROA1 | % | % | % | % | % | % |
| Adjusted: Mark to Market Available-for-sale Securities | |||||||
| | Adjusted net earnings (USD $ in thousands) | ||||||
| | Total assets (USD $ in thousands) | ||||||
| | Adjusted ROA2 | % | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net earnings ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net earnings ÷ Total assets
= 100 × ÷ = %
| 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 2015 to 2016 but then slightly improved from 2016 to 2017. |
