Fortinet Inc. (NASDAQ:FTNT)

Goodwill

The value of goodwill has shown a consistent increasing trend over the period, rising from 38,200 thousand USD in 2018 to 128,000 thousand USD in 2022. This indicates several acquisitions or growth-related intangible asset enhancements during these years.

Developed technologies

Developed technologies have similarly increased steadily from 34,400 thousand USD in 2018 to 85,100 thousand USD in 2022. This reflects ongoing investment or capitalization of technology development over the examined period.

Customer relationships

Customer relationships rose from 17,500 thousand USD in 2018 to 31,000 thousand USD in 2022, although a decline was observed in 2021 compared to 2020. This fluctuation may indicate adjustments in estimated values or changes in acquired customer contracts.

Trade name

Trade name intangible assets first appeared in 2021 at 6,100 thousand USD and slightly decreased to 5,300 thousand USD in 2022, potentially reflecting revaluation or amortization effects.

Backlog

Backlog values are reported only in 2021 and 2022, with 4,800 and 4,200 thousand USD respectively, showing a minor decrease which may indicate reduced contracted but unfulfilled orders.

Finite-lived intangible assets, gross

This category increased significantly from 51,900 thousand USD in 2018 to 125,600 thousand USD in 2022, consistent with growth in developed technologies, customer relationships, and the addition of new intangible assets.

Accumulated amortization

Accumulated amortization of finite-lived intangible assets grew in magnitude from -29,800 thousand USD in 2018 to -69,600 thousand USD in 2022. The negative values represent amortization expense increasing over time, though a slight reduction was noticed in 2021 before increasing again in 2022.

Finite-lived intangible assets, net

Net finite-lived intangible assets increased from 22,100 thousand USD in 2018 to a peak of 63,600 thousand USD in 2021, then declined to 56,000 thousand USD in 2022. This pattern shows growth in intangible assets partially offset by amortization, with a reduction in net value in the last period.

Other intangible assets, net

The values for other intangible assets net are identical to the finite-lived intangible assets net figures, confirming they represent the same category under different naming conventions.

Goodwill and other intangible assets, net

The combined net goodwill and other intangible assets demonstrate a consistent increase from 60,300 thousand USD in 2018 to a maximum of 188,700 thousand USD in 2021, with a slight decrease to 184,000 thousand USD in 2022. This reflects the overall accumulation of intangible asset value, balancing asset additions and amortization over time.

The analysis of the annual financial data reveals several notable trends and changes in the reported and goodwill-adjusted figures over the five-year period ending December 31, 2022.

Total Assets

Reported total assets show a consistent upward trend from 3,078,000 thousand US dollars in 2018 to 6,228,000 thousand US dollars in 2022, nearly doubling over the period. The adjusted total assets, which exclude goodwill, follow a similar pattern but with slightly lower values, increasing from 3,039,800 thousand US dollars in 2018 to 6,100,000 thousand US dollars in 2022. The gap between reported and adjusted assets remains relatively stable, indicating that goodwill adjustments have a consistent impact on total asset figures across the years.

Stockholders’ Equity (Deficit)

Reported total stockholders’ equity experiences an initial increase from 1,010,200 thousand US dollars in 2018 to a peak of 1,321,900 thousand US dollars in 2019. However, there is a pronounced decline thereafter, dropping sharply to 856,000 thousand US dollars in 2020 and continuing downward to reach a deficit of 281,600 thousand US dollars by 2022. The adjusted stockholders’ equity values mirror this trend but present slightly lower figures throughout, culminating in a negative equity of 409,600 thousand US dollars in 2022.

This transition from positive to negative equity over the later years suggests increasing liabilities or other balance sheet factors adversely impacting the company's net worth. The decline despite growing total assets could indicate increased leverage or accumulation of intangible assets not fully supported by corresponding equity increments.

Overall, while total asset growth is robust over the analyzed period, the deterioration in equity signals potential financial stress or changes in capital structure. The consistency between reported and adjusted figures implies that goodwill adjustments, although present, do not disproportionately affect the company's valuation trends. These patterns warrant further investigation into the underlying causes of the equity decline and the company's strategy to manage its balance sheet composition going forward.

Total Asset Turnover

The reported total asset turnover exhibited moderate fluctuations over the observed period, starting at 0.59 in 2018, dipping slightly to 0.55 in 2019, peaking at 0.64 in 2020, declining to 0.56 in 2021, and then rising significantly to 0.71 in 2022. The adjusted total asset turnover closely mirrors this pattern but shows slightly higher values each year, suggesting a marginal positive impact from goodwill adjustments on asset efficiency measurement.

Financial Leverage

Reported financial leverage increased substantially from 3.05 in 2018 to 7.57 in 2021, indicating a significant rise in the company’s reliance on debt or other liabilities relative to equity. Adjusted financial leverage values are consistently higher than reported figures, increasing from 3.13 in 2018 to 8.82 in 2021. Data for 2022 is missing, but the trend through 2021 suggests an ongoing escalation in leverage when goodwill is accounted for.

Return on Equity (ROE)

Reported ROE displays a strong upward trajectory, moving from 32.88% in 2018 to a high of 77.63% in 2021. Adjusted ROE follows a similar but even more pronounced increase, rising from 34.18% in 2018 to 92.42% in 2021. This suggests that excluding goodwill from equity enhances the perceived profitability on equity, and the company has significantly improved its efficiency in generating returns for shareholders over the period.

Return on Assets (ROA)

Reported ROA shows variability, with an initial decline from 10.79% in 2018 to 8.40% in 2019, followed by an increase to 12.08% in 2020, a drop to 10.25% in 2021, and a rise to 13.77% in 2022. Adjusted ROA values are consistently slightly higher than reported values, fluctuating in a similar pattern and reaching 14.05% in 2022. This indicates an overall improvement in asset profitability, with goodwill adjustments providing a better reflection of operational efficiency.

Total Assets

The reported total assets exhibit a consistent upward trend over the five-year period, increasing from approximately $3.08 billion in 2018 to about $6.23 billion in 2022. Similarly, adjusted total assets follow a parallel trajectory, rising from roughly $3.04 billion in 2018 to $6.10 billion in 2022. This progression indicates substantial asset growth, with year-over-year increases reflecting ongoing investments or acquisitions, while the slight difference between reported and adjusted figures suggests the consideration of goodwill adjustments impacts asset valuation modestly but consistently.

Total Asset Turnover

The reported total asset turnover fluctuates across the timeline, starting at 0.59 in 2018, experiencing a slight decline to 0.55 in 2019, then increasing to 0.64 in 2020. It decreases again to 0.56 in 2021 before rising to 0.71 in 2022. Adjusted total asset turnover follows a similar pattern but with slightly higher ratios in later years, moving from 0.59 in 2018 to 0.72 in 2022. These variations imply changes in the efficiency with which assets are generating revenue. The acceleration in turnover in 2020 and 2022 suggests improved asset utilization or higher sales relative to the asset base, while the dips in 2019 and 2021 imply periods of relative underperformance or increased asset base without proportional revenue growth.

Insights

Overall, the data reflects robust asset growth alongside a somewhat volatile but trend-positively improving asset turnover ratio. This combination may indicate strategic scaling of the business’s asset base with eventual improvements in asset productivity. The goodwill adjustment has a small but consistent effect on the reported values, slightly reducing asset totals and marginally increasing asset turnover ratios, which may suggest that the adjustments refine the asset base to better reflect operational performance. The inter-year fluctuations in asset turnover warrant additional analysis to understand underlying operational or market factors influencing efficiency during those periods.

Total Assets

The reported total assets demonstrated a consistent upward trend from 2018 to 2022. Starting at approximately $3.08 billion in 2018, the total assets grew steadily to about $6.23 billion by the end of 2022. Similarly, the adjusted total assets, which account for goodwill, followed a parallel trajectory, increasing from approximately $3.04 billion in 2018 to around $6.10 billion in 2022. This growth indicates an overall expansion of the company's asset base during the period.

Stockholders' Equity (Deficit)

Reported stockholders' equity showed variability over the years. It increased from $1.01 billion in 2018 to a peak of $1.32 billion in 2019, followed by a sharp decline to $856 million in 2020 and further decreased to $782 million in 2021. By 2022, the reported equity turned negative, reaching a deficit of approximately -$282 million. The adjusted equity trend mirrored this pattern, starting at $972 million in 2018, rising to $1.25 billion in 2019, then declining steadily to a negative adjusted equity of about -$410 million in 2022. This shift to negative equity suggests potential financial strain or increased liabilities relative to assets.

Financial Leverage

Reported financial leverage ratio initially decreased slightly from 3.05 in 2018 to 2.94 in 2019, indicating reduced leverage. However, leverage rose significantly from 2020 onward, reaching 4.72 in 2020 and increasing sharply to 7.57 in 2021. Adjusted financial leverage followed a similar but more pronounced trend, decreasing marginally from 3.13 in 2018 to 3.04 in 2019, then increasing dramatically to 5.18 in 2020 and 8.82 in 2021. Data for 2022 is not available for leverage ratios. The upward trend in leverage indicates an increased reliance on debt financing relative to equity, especially pronounced after 2019.

Overall Insights

The data reflects a company that has expanded its asset base substantially over the five-year period. However, the decline and eventual negativity in stockholders’ equity coupled with rising financial leverage ratios from 2020 onward may highlight increasing financial risk. The negative equity figure in 2022 is particularly noteworthy, indicating that liabilities may exceed assets when considering book value, potentially signaling solvency concerns or restructuring activity. The divergence between reported and adjusted figures is relatively modest but consistently shows slightly lower asset and equity values when goodwill is adjusted out, emphasizing the role of intangible assets in the company's balance sheet.

The financial data reveals notable trends and fluctuations in the stockholders' equity and return on equity (ROE) of the subject company over the five-year period from 2018 to 2022.

Stockholders' Equity (Reported vs Adjusted)

Both reported and adjusted total stockholders' equity increased from 2018 to 2019, with reported equity rising from approximately 1,010.2 million to 1,321.9 million US dollars, and adjusted equity growing from 972 million to 1,254.7 million US dollars. This indicates a strengthening equity base in that period.

However, in 2020, both reported and adjusted equity declined sharply to 856 million and 763 million US dollars, respectively. This downward trend continued in 2021, with reported equity decreasing further to 781.7 million and adjusted equity to 656.6 million US dollars.

The most pronounced decline occurred in 2022, where reported equity turned negative, showing a deficit of -281.6 million US dollars, and adjusted equity reflected an even larger deficit of -409.6 million US dollars. This signals significant erosion in the company's net worth and potentially underlying financial challenges.

Return on Equity (Reported vs Adjusted)

The reported ROE started at a high level of 32.88% in 2018, then dropped to 24.7% in 2019. Following this decline, there was a strong upward reversal, with ROE surging to 57.07% in 2020 and further to 77.63% in 2021.

The adjusted ROE exhibits a similar pattern but at slightly higher values, beginning at 34.18% in 2018, decreasing to 26.02% in 2019, then sharply increasing to 64.02% in 2020 and peaking at 92.42% in 2021.

The data for ROE in 2022 is not provided, thus no assessment can be made for that year. The strong growth in ROE from 2019 through 2021 suggests improved profitability relative to equity during that timeframe despite the declining equity base noted in the same period.

Overall Observations

While equity levels demonstrate a significant decline culminating in a negative equity position in 2022, the ROE metrics reflect a period of enhanced profitability through 2021. The disconnection between shrinking equity values and rising ROE may point to increased earnings but a deteriorating balance sheet, possibly caused by factors such as goodwill impairments or other adjustments affecting net equity.

The negative equity in 2022 is a critical point of concern, indicating financial distress or substantial write-downs that exceeded the company’s equity cushion.

Total Assets

There is a consistent upward trend in reported total assets from 2018 to 2022, increasing from approximately 3,078 million US dollars to 6,228 million US dollars. This more than doubles the asset base over the five-year period.

Adjusted total assets, which exclude goodwill, follow a similar pattern, rising from about 3,040 million US dollars in 2018 to 6,100 million US dollars in 2022. The adjusted figures remain slightly lower than the reported values, indicating the presence but relatively stable proportion of goodwill on the balance sheet.

Return on Assets (ROA)

Reported ROA shows fluctuations over the years, beginning at 10.79% in 2018, declining to 8.4% in 2019, then improving to 12.08% in 2020 before decreasing to 10.25% in 2021 and ultimately rising sharply to 13.77% in 2022. This suggests a variable but overall positive profitability trend relative to asset levels.

Adjusted ROA, which presumably excludes the effects of goodwill, mirrors the pattern observed in reported ROA but at slightly higher percentages. It starts at 10.93% in 2018, dips to 8.55% in 2019, climbs to 12.36% in 2020, slightly decreases to 10.47% in 2021, and then increases to 14.05% in 2022. The higher adjusted ROA values imply that excluding goodwill assets provides a stronger indication of asset profitability.

Insights

The significant growth in total assets over the period indicates expansion or increased investment in the company's operational base. The similarity between reported and adjusted total assets suggests that goodwill does not constitute an excessively large portion of total assets.

The improvement in ROA, especially the notable increase in the final year, indicates enhanced efficiency in generating profit from assets. The adjusted ROA consistently outperforms the reported ROA, highlighting the effect of goodwill adjustments for a clearer assessment of operational performance.