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Intuitive Surgical Inc. (ISRG)

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 and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually during the fourth fiscal quarter, or if circumstances indicate their value may no longer be recoverable. Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities. Intuitive Surgical continues to operate in one segment, which is considered to be the sole reporting unit and, therefore, goodwill was tested for impairment at the enterprise level. As of December 31, 2018, there has been no impairment of goodwill.

Intangible assets are carried at cost, net of accumulated amortization. Intuitive Surgical does not have intangible assets with indefinite useful lives other than goodwill. Amortization is recorded on a straight-line basis over the intangible assets’ useful lives, which range from approximately 1 to 9 years.

Source: 10-K (filing date: 2019-02-04).

Goodwill and Intangible Assets Disclosure

Intuitive Surgical Inc., balance sheet: goodwill and intangible assets

US$ in thousands

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Patents and developed technology
	Distribution rights and others
	Customer relationships
	Intangible assets, gross carrying amount
	Accumulated amortization
	Intangible assets, net carrying amount
	Goodwill
	Intangible assets and goodwill

Based on: 10-K (filing date: 2019-02-04), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-02), 10-K (filing date: 2015-02-06).

Item	Description	The company
Intangible assets, net carrying amount	Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.	Intuitive Surgical Inc.’s intangible assets, net carrying amount declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
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.
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.	Intuitive Surgical Inc.’s intangible assets and goodwill declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Adjustments to Financial Statements: Removal of Goodwill

Intuitive Surgical Inc., adjustments to financial statements

US$ in thousands

		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 Intuitive Surgical, Inc. Stockholders’ Equity
	Total Intuitive Surgical, Inc. stockholders’ equity (as reported)
	Less: Goodwill
	Total Intuitive Surgical, Inc. stockholders’ equity (adjusted)

Based on: 10-K (filing date: 2019-02-04), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-02), 10-K (filing date: 2015-02-06).

Intuitive Surgical Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Goodwill (Summary)

Intuitive Surgical 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: 2019-02-04), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-02), 10-K (filing date: 2015-02-06).

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

Intuitive Surgical 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 thousands)
	Revenue
	Total assets
	Activity Ratio
	Total asset turnover¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in thousands)
	Revenue
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-02-04), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-02), 10-K (filing date: 2015-02-06).

2018 Calculations

¹ Total asset turnover = Revenue ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Revenue ÷ 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.	Intuitive Surgical Inc.’s adjusted total asset turnover ratio improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.

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 thousands)
	Total assets
	Total Intuitive Surgical, Inc. stockholders’ equity
	Solvency Ratio
	Financial leverage¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in thousands)
	Adjusted total assets
	Adjusted total Intuitive Surgical, Inc. stockholders’ equity
	Solvency Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-02-04), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-02), 10-K (filing date: 2015-02-06).

2018 Calculations

¹ Financial leverage = Total assets ÷ Total Intuitive Surgical, Inc. stockholders’ equity
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Intuitive Surgical, Inc. 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.	Intuitive Surgical Inc.’s adjusted financial leverage ratio increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

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 thousands)
	Net income attributable to Intuitive Surgical, Inc.
	Total Intuitive Surgical, Inc. stockholders’ equity
	Profitability Ratio
	ROE¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in thousands)
	Net income attributable to Intuitive Surgical, Inc.
	Adjusted total Intuitive Surgical, Inc. stockholders’ equity
	Profitability Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-02-04), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-02), 10-K (filing date: 2015-02-06).

2018 Calculations

¹ ROE = 100 × Net income attributable to Intuitive Surgical, Inc. ÷ Total Intuitive Surgical, Inc. stockholders’ equity
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Net income attributable to Intuitive Surgical, Inc. ÷ Adjusted total Intuitive Surgical, Inc. 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.	Intuitive Surgical Inc.’s adjusted ROE improved from 2016 to 2017 and 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 thousands)
	Net income attributable to Intuitive Surgical, Inc.
	Total assets
	Profitability Ratio
	ROA¹
	Adjusted for Goodwill
	Selected Financial Data (US$ in thousands)
	Net income attributable to Intuitive Surgical, Inc.
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-02-04), 10-K (filing date: 2018-02-02), 10-K (filing date: 2017-02-06), 10-K (filing date: 2016-02-02), 10-K (filing date: 2015-02-06).

2018 Calculations

¹ ROA = 100 × Net income attributable to Intuitive Surgical, Inc. ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Net income attributable to Intuitive Surgical, Inc. ÷ 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.	Intuitive Surgical Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018.

	Intuitive Surgical 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