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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
Long-Lived Assets, Including Goodwill and Other Acquired Intangible Assets
Facebook evaluates the recoverability of property and equipment and finite-lived intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. Facebook has not recorded any significant impairment charges during the years presented.
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, 2018, 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 reduces 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: 2019-01-31).
Goodwill and Intangible Assets Disclosure
Facebook Inc., Statement of Financial Position, Goodwill and Intangible Assets
USD $ in millions
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| Intangible assets | |
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| Goodwill | |
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Based on: 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), 10-K (filing date: 2015-01-29).
| 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 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. | Facebook Inc.’s goodwill increased from 2016 to 2017 and from 2017 to 2018. |
| 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 declined from 2016 to 2017 and from 2017 to 2018. |
Analyst Adjustments: Removal of Goodwill
Facebook Inc., adjustments to financial data
USD $ in millions
Based on: 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), 10-K (filing date: 2015-01-29).
Facebook Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Goodwill (Summary)
Facebook Inc., adjusted ratios
Based on: 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), 10-K (filing date: 2015-01-29).
| 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 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. |
Facebook Inc.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018. |
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Facebook Inc.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018. |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Facebook Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018. |
Facebook Inc., Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 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), 10-K (filing date: 2015-01-29).
2018 Calculations
1 Total asset turnover = Revenue ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= ÷ =
| 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 improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Financial Leverage
Based on: 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), 10-K (filing date: 2015-01-29).
2018 Calculations
1 Financial leverage = Total assets ÷ Stockholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted 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. |
Facebook Inc.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018. |
Adjusted Return on Equity (ROE)
Based on: 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), 10-K (filing date: 2015-01-29).
2018 Calculations
1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Net income ÷ Adjusted stockholders’ equity
= 100 × ÷ =
| 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 2016 to 2017 and from 2017 to 2018. |
Adjusted Return on Assets (ROA)
Based on: 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), 10-K (filing date: 2015-01-29).
2018 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × ÷ =
| 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 2016 to 2017 and from 2017 to 2018. |