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Microsoft Excel LibreOffice Calc


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


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 Broadcom's 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 compare 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 in-process research and development, or 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 the 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: Broadcom Inc., Annual Report


Goodwill and Intangible Assets Disclosure

Broadcom Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014 Nov 3, 2013 Oct 28, 2012
Purchased technology hidden hidden hidden hidden hidden hidden
Customer contracts and related relationships hidden hidden hidden hidden hidden hidden
Trade names hidden hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden hidden
Intangible assets subject to amortization, gross carrying amount hidden hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden hidden
Intangible assets subject to amortization, net book value hidden hidden hidden hidden hidden hidden
IPR&D hidden hidden hidden hidden hidden hidden
Intangible assets hidden hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden hidden
Goodwill and intangible assets hidden hidden hidden hidden hidden hidden

Source: Based on data from Broadcom Inc. Annual Reports

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 increased from 2015 to 2016 but then slightly declined from 2016 to 2017.
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. Broadcom Inc.'s goodwill increased from 2015 to 2016 but then slightly declined from 2016 to 2017.
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 increased from 2015 to 2016 but then slightly declined from 2016 to 2017.

Analyst Adjustments: Removal of Goodwill

Broadcom Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014 Nov 3, 2013 Oct 28, 2012
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Total Broadcom Inc. Stockholders’ Equity
Total Broadcom Inc. stockholders’ equity (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total Broadcom Inc. stockholders’ equity (adjusted) hidden hidden hidden hidden hidden hidden

Adjusted Ratios: Removal of Goodwill (Summary)

Broadcom Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014 Nov 3, 2013 Oct 28, 2012
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted ROE hidden% hidden% hidden% hidden% hidden% hidden%
Return on Assets (ROA)
Reported ROA hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted ROA hidden% hidden% hidden% hidden% hidden% hidden%
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 deteriorated from 2015 to 2016 but then slightly improved 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.
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 deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014 Nov 3, 2013 Oct 28, 2012
As Reported
Net revenue (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Net revenue (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

2017 Calculations

1 Total asset turnover = Net revenue ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Net revenue ÷ Adjusted total assets
= hidden ÷ hidden = hidden

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 deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014 Nov 3, 2013 Oct 28, 2012
As Reported
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total Broadcom Inc. stockholders’ equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total Broadcom Inc. stockholders’ equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

2017 Calculations

1 Financial leverage = Total assets ÷ Total Broadcom Inc. stockholders’ equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Broadcom Inc. stockholders’ equity
= hidden ÷ hidden = hidden

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)

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014 Nov 3, 2013 Oct 28, 2012
As Reported
Net income (loss) attributable to ordinary shares (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total Broadcom Inc. stockholders’ equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
ROE1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Net income (loss) attributable to ordinary shares (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total Broadcom Inc. stockholders’ equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted ROE2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 ROE = 100 × Net income (loss) attributable to ordinary shares ÷ Total Broadcom Inc. stockholders’ equity
= 100 × hidden ÷ hidden = hidden%

2 Adjusted ROE = 100 × Net income (loss) attributable to ordinary shares ÷ Adjusted total Broadcom Inc. stockholders’ equity
= 100 × hidden ÷ hidden = hidden%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Oct 29, 2017 Oct 30, 2016 Nov 1, 2015 Nov 2, 2014 Nov 3, 2013 Oct 28, 2012
As Reported
Net income (loss) attributable to ordinary shares (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
ROA1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Net income (loss) attributable to ordinary shares (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted ROA2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 ROA = 100 × Net income (loss) attributable to ordinary shares ÷ Total assets
= 100 × hidden ÷ hidden = hidden%

2 Adjusted ROA = 100 × Net income (loss) attributable to ordinary shares ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Broadcom Inc.'s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level.