Stock Analysis on Net
Stock Analysis on Net
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Facebook Inc. (NASDAQ:FB)

Analysis of Goodwill and Intangible Assets

Advanced level

Accounting Policy on Goodwill and Intangible Assets

Facebook reviews goodwill for impairment at least annually or more frequently if events or changes in circumstances would more likely than not reduce the fair value of the single reporting unit below its carrying value. As of December 31, 2019, no impairment of goodwill has been identified.

Acquired finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. Facebook routinely reviews the remaining estimated useful lives of property and equipment and finite-lived intangible assets. If Facebook changes the estimated useful life assumption for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life.

Source: 10-K (filing date: 2020-01-30).

Goodwill and Intangible Asset Disclosure

Facebook Inc., balance sheet: goodwill and intangible assets

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Acquired users 2,056  2,056  2,056  2,056  2,056 
Acquired technology 1,158  1,002  972  931  831 
Acquired patents 805  805  785  785  785 
Trade names 635  629  629  629  629 
Other 162  162  162  162  162 
Finite-lived intangible assets, gross carrying amount 4,816  4,654  4,604  4,563  4,463 
Accumulated amortization (3,922) (3,360) (2,720) (2,028) (1,277)
Finite-lived intangible assets, net carrying amount 894  1,294  1,884  2,535  3,186 
In-process research and development (IPR&D) —  —  —  —  60 
Indefinite-lived intangible assets —  —  —  —  60 
Intangible assets 894  1,294  1,884  2,535  3,246 
Goodwill 18,715  18,301  18,221  18,122  18,026 
Goodwill and intangible assets 19,609  19,595  20,105  20,657  21,272 

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

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. Facebook Inc.’s intangible assets decreased from 2017 to 2018 and from 2018 to 2019.
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. Facebook Inc.’s goodwill increased from 2017 to 2018 and from 2018 to 2019.
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. Facebook Inc.’s goodwill and intangible assets decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

Adjustments to Financial Statements: Removal of Goodwill

Facebook Inc., adjustments to financial statements

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Adjustment to Total Assets
Total assets (as reported) 133,376  97,334  84,524  64,961  49,407 
Less: Goodwill 18,715  18,301  18,221  18,122  18,026 
Total assets (adjusted) 114,661  79,033  66,303  46,839  31,381 
Adjustment to Stockholders’ Equity
Stockholders’ equity (as reported) 101,054  84,127  74,347  59,194  44,218 
Less: Goodwill 18,715  18,301  18,221  18,122  18,026 
Stockholders’ equity (adjusted) 82,339  65,826  56,126  41,072  26,192 

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

Facebook Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Goodwill (Summary)

Facebook Inc., adjusted financial ratios

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Total Asset Turnover
Reported total asset turnover 0.53 0.57 0.48 0.43 0.36
Adjusted total asset turnover 0.62 0.71 0.61 0.59 0.57
Financial Leverage
Reported financial leverage 1.32 1.16 1.14 1.10 1.12
Adjusted financial leverage 1.39 1.20 1.18 1.14 1.20
Return on Equity (ROE)
Reported ROE 18.29% 26.28% 21.43% 17.26% 8.34%
Adjusted ROE 22.45% 33.59% 28.39% 24.88% 14.08%
Return on Assets (ROA)
Reported ROA 13.86% 22.72% 18.85% 15.73% 7.46%
Adjusted ROA 16.12% 27.98% 24.03% 21.81% 11.75%

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

Financial ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Facebook Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.
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.		 Facebook Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Facebook Inc.’s adjusted ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Facebook Inc.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Facebook Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Revenue 70,697  55,838  40,653  27,638  17,928 
Total assets 133,376  97,334  84,524  64,961  49,407 
Activity Ratio
Total asset turnover1 0.53 0.57 0.48 0.43 0.36
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Revenue 70,697  55,838  40,653  27,638  17,928 
Adjusted total assets 114,661  79,033  66,303  46,839  31,381 
Activity Ratio
Adjusted total asset turnover2 0.62 0.71 0.61 0.59 0.57

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

2019 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= 70,697 ÷ 133,376 = 0.53

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= 70,697 ÷ 114,661 = 0.62

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Facebook Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.

Adjusted Financial Leverage

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Total assets 133,376  97,334  84,524  64,961  49,407 
Stockholders’ equity 101,054  84,127  74,347  59,194  44,218 
Solvency Ratio
Financial leverage1 1.32 1.16 1.14 1.10 1.12
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted total assets 114,661  79,033  66,303  46,839  31,381 
Adjusted stockholders’ equity 82,339  65,826  56,126  41,072  26,192 
Solvency Ratio
Adjusted financial leverage2 1.39 1.20 1.18 1.14 1.20

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

2019 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity
= 133,376 ÷ 101,054 = 1.32

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= 114,661 ÷ 82,339 = 1.39

Solvency 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.		 Facebook Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income 18,485  22,112  15,934  10,217  3,688 
Stockholders’ equity 101,054  84,127  74,347  59,194  44,218 
Profitability Ratio
ROE1 18.29% 26.28% 21.43% 17.26% 8.34%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net income 18,485  22,112  15,934  10,217  3,688 
Adjusted stockholders’ equity 82,339  65,826  56,126  41,072  26,192 
Profitability Ratio
Adjusted ROE2 22.45% 33.59% 28.39% 24.88% 14.08%

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

2019 Calculations

1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × 18,485 ÷ 101,054 = 18.29%

2 Adjusted ROE = 100 × Net income ÷ Adjusted stockholders’ equity
= 100 × 18,485 ÷ 82,339 = 22.45%

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Facebook Inc.’s adjusted ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income 18,485  22,112  15,934  10,217  3,688 
Total assets 133,376  97,334  84,524  64,961  49,407 
Profitability Ratio
ROA1 13.86% 22.72% 18.85% 15.73% 7.46%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net income 18,485  22,112  15,934  10,217  3,688 
Adjusted total assets 114,661  79,033  66,303  46,839  31,381 
Profitability Ratio
Adjusted ROA2 16.12% 27.98% 24.03% 21.81% 11.75%

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

2019 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × 18,485 ÷ 133,376 = 13.86%

2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × 18,485 ÷ 114,661 = 16.12%

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