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Broadcom Inc. (AVGO)
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
Goodwill
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill is not amortized but is reviewed annually (or more frequently if impairment indicators arise) for impairment. To review for impairment Broadcom first assesses qualitative factors to determine whether events or circumstances lead to a determination that it is more likely than not that the fair value of any of the reporting units is less than its carrying amount. Broadcom’s qualitative assessment of the recoverability of goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors. Those factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of Broadcom’s financial performance; or (iv) a sustained decrease in the market capitalization below the net book value. After assessing the totality of events and circumstances, if Broadcom determines that it is not more likely than not that the fair value of any of the reporting units is less than its carrying amount, no further assessment is performed. If Broadcom determines that it is more likely than not that the fair value of any of the reporting units is less than its carrying amount, Broadcom calculates the fair value of that reporting unit and compares the fair value to the reporting unit’s net book value. If the fair value of the reporting unit is greater than its net book value, there is no impairment. Otherwise, Broadcom calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit. The implied fair value of goodwill is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions.
Long-lived assets
Purchased finite-lived intangible assets are carried at cost less accumulated amortization. Amortization is recognized over the periods during which the intangible assets are expected to contribute to Broadcom’s cash flows. Purchased IPR&D projects are capitalized at fair value as an indefinite lived intangible asset and assessed for impairment thereafter. Upon completion of each underlying project, IPR&D assets are reclassified as an amortizable purchased intangible asset and amortized over their estimated useful lives. If an IPR&D project is abandoned, Broadcom recognizes the carrying value of the related intangible asset in the consolidated statements of operations in the period it is abandoned. On a quarterly basis, Broadcom monitors factors and changes in circumstances that could indicate carrying amounts of long-lived assets, including purchased intangible assets and property, plant and equipment, may not be recoverable. Factors Broadcom considers important which could trigger an impairment review include (i) significant under-performance relative to historical or projected future operating results, (ii) significant changes in the manner of Broadcom’s use of the acquired assets or the strategy for the overall business, and (iii) significant negative industry or economic trends. An impairment loss must be measured if the sum of the expected future cash flows (undiscounted and before interest) from the use and eventual disposition of the asset (or asset group) is less than the net book value of the asset (or asset group). The amount of the impairment loss will generally be measured as the difference between the net book value of the asset (or asset group) and the estimated fair value.
Source: 10-K (filing date: 2018-12-21).
Goodwill and Intangible Assets Disclosure
Broadcom Inc., balance sheet: goodwill and intangible assets
US$ in millions
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| Intangible assets subject to amortization, gross carrying amount | |
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| Intangible assets subject to amortization, net book value | |
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| Goodwill | |
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Based on: 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29), 10-K (filing date: 2013-12-20).
| Item | Description | The company |
|---|---|---|
| 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. | Broadcom Inc.’s intangible assets declined from 2016 to 2017 and from 2017 to 2018. |
| 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. | Broadcom Inc.’s goodwill declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
| Goodwill and 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. | Broadcom Inc.’s goodwill and intangible assets declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level. |
Analyst Adjustments: Removal of Goodwill
Broadcom Inc., adjustments to financial data
US$ in millions
Based on: 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29), 10-K (filing date: 2013-12-20).
Broadcom Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Goodwill (Summary)
Broadcom Inc., adjusted ratios
Based on: 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29), 10-K (filing date: 2013-12-20).
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Broadcom Inc.’s adjusted total asset turnover improved from 2016 to 2017 and from 2017 to 2018. |
| 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. |
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| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Broadcom Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018. |
Broadcom Inc., Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29), 10-K (filing date: 2013-12-20).
2018 Calculations
1 Total asset turnover = Net revenue ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net revenue ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Broadcom Inc.’s adjusted total asset turnover improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29), 10-K (filing date: 2013-12-20).
2018 Calculations
1 Financial leverage = Total assets ÷ Total Broadcom Inc. stockholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Broadcom Inc. 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. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29), 10-K (filing date: 2013-12-20).
2018 Calculations
1 ROE = 100 × Net income (loss) attributable to common stock ÷ Total Broadcom Inc. stockholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Net income (loss) attributable to common stock ÷ Adjusted total Broadcom Inc. stockholders’ equity
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17), 10-K (filing date: 2014-12-29), 10-K (filing date: 2013-12-20).
2018 Calculations
1 ROA = 100 × Net income (loss) attributable to common stock ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Net income (loss) attributable to common stock ÷ Adjusted total assets
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Broadcom Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018. |