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Gilead Sciences Inc. (GILD)

Analysis of Goodwill and Intangible Assets

High level of difficulty

Accounting Policy on Goodwill and Intangible Assets
Goodwill and Intangible Assets Disclosure
Adjustments to Financial Statements: Removal of Goodwill
Adjusted Financial Ratios: Removal of Goodwill (Summary)
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Accounting Policy on Goodwill and Intangible Assets

Goodwill represents the excess of the consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. Intangible assets with indefinite useful lives are related to purchased IPR&D projects and are measured at their respective fair values as of the acquisition date. Gilead does not amortize goodwill and intangible assets with indefinite useful lives. Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. If and when development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets are deemed finite-lived and are amortized based on their respective estimated useful lives at that point in time. Gilead tests goodwill and other indefinite-lived intangible assets for impairment on an annual basis and in between annual tests if Gilead becomes aware of any events or circumstances that would indicate the fair values of the assets are below their carrying amounts.

Intangible assets with finite useful lives are amortized over their estimated useful lives, primarily on a straight-line basis, and are reviewed for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable.

Source: 10-K (filing date: 2019-02-26).

Goodwill and Intangible Assets Disclosure

Gilead Sciences Inc., balance sheet: goodwill and intangible assets

US$ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Sofosbuvir
	Axicabtagene ciloleucel (DLBCL)
	Ranexa
	Other
	Finite-lived assets, gross carrying amount
	Accumulated amortization
	Finite-lived assets, net carrying amount
	IPR&D
	Indefinite-lived assets
	Intangible assets
	Goodwill
	Intangible assets and goodwill

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

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.	Gilead Sciences Inc.’s intangible assets increased from 2016 to 2017 but then slightly declined 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.	Gilead Sciences Inc.’s goodwill increased from 2016 to 2017 but then slightly declined from 2017 to 2018.
Intangible assets and goodwill	Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.	Gilead Sciences Inc.’s intangible assets and goodwill increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Adjustments to Financial Statements: Removal of Goodwill

Gilead Sciences Inc., adjustments to financial statements

US$ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Goodwill
	Total assets (adjusted)
	Adjustment to Total Gilead Stockholders’ Equity
	Total Gilead stockholders’ equity (as reported)
	Less: Goodwill
	Total Gilead stockholders’ equity (adjusted)

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

Gilead Sciences Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Goodwill (Summary)

Gilead Sciences Inc., adjusted financial ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

Financial ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Gilead Sciences Inc.’s adjusted total asset turnover ratio deteriorated 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.	Gilead Sciences Inc.’s adjusted financial leverage ratio increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.
Adjusted ROE	A profitability ratio calculated as net income divided by adjusted shareholders’ equity.	Gilead Sciences Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Adjusted ROA	A profitability ratio calculated as net income divided by adjusted total assets.	Gilead Sciences Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Gilead Sciences Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Product sales
	Total assets
	Activity Ratio
	Total asset turnover¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Product sales
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

¹ Total asset turnover = Product sales ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Product sales ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Activity ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Gilead Sciences Inc.’s adjusted total asset turnover ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Financial Leverage

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Total Gilead stockholders’ equity
	Solvency Ratio
	Financial leverage¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted total Gilead stockholders’ equity
	Solvency Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

¹ Financial leverage = Total assets ÷ Total Gilead stockholders’ equity
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Gilead stockholders’ equity
= hidden ÷ hidden = hidden

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.	Gilead Sciences Inc.’s adjusted financial leverage ratio increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.

Adjusted Return on Equity (ROE)

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Gilead
	Total Gilead stockholders’ equity
	Profitability Ratio
	ROE¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Net income attributable to Gilead
	Adjusted total Gilead stockholders’ equity
	Profitability Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

¹ ROE = 100 × Net income attributable to Gilead ÷ Total Gilead stockholders’ equity
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Net income attributable to Gilead ÷ Adjusted total Gilead stockholders’ equity
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as net income divided by adjusted shareholders’ equity.	Gilead Sciences Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Adjusted Return on Assets (ROA)

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Gilead
	Total assets
	Profitability Ratio
	ROA¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in millions)
	Net income attributable to Gilead
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

¹ ROA = 100 × Net income attributable to Gilead ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Net income attributable to Gilead ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as net income divided by adjusted total assets.	Gilead Sciences Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

	Gilead Sciences Inc.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

	All companies
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality