Analysis of Goodwill and Intangible Assets
- Goodwill and Intangible Asset Disclosure
- Adjustments to Financial Statements: Removal of Goodwill
- Adjusted Financial Ratios: Removal of Goodwill (Summary)
- Adjusted Net Profit Margin
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
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- Income Statement
- Common-Size Balance Sheet: Assets
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Solvency Ratios
- Analysis of Reportable Segments
- Enterprise Value to FCFF (EV/FCFF)
- Dividend Discount Model (DDM)
- Net Profit Margin since 2015
- Total Asset Turnover since 2015
- Price to Operating Profit (P/OP) since 2015
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Goodwill and Intangible Asset Disclosure
Kraft Heinz Co., balance sheet: goodwill and intangible assets
US$ in millions
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Goodwill
- Goodwill exhibited an initial increase from 43,051 million US dollars in 2015 to a peak of 44,824 million in 2017. Subsequently, there was a notable decline, reaching 35,546 million by the end of 2019. This downward trend suggests impairment or revaluation adjustments during the later periods.
- Indefinite-lived intangible assets
- The value of indefinite-lived intangible assets decreased consistently over the observed period, dropping from 55,824 million US dollars in 2015 to 43,400 million in 2019. This represents a significant reduction, implying potential impairments or strategic disposals.
- Trademarks
- Trademarks showed relative stability with minor fluctuations, starting at 2,346 million in 2015, slightly decreasing in 2016, and then moderately increasing to 2,474 million in 2018, followed by a slight decrease to 2,443 million in 2019. Overall, trademarks maintained a fairly steady valuation.
- Customer-related assets
- Customer-related assets remained relatively stable, ranging narrowly from 4,218 million in 2015 to 4,113 million in 2019. This suggests a consistent valuation without significant growth or impairment.
- Other intangible assets
- Assets categorized as 'Other' showed minimal fluctuation with low absolute values, maintaining around a range of 13 to 18 million over the years, indicating minor impact on the overall intangible asset portfolio.
- Definite-lived intangible assets (gross)
- The gross value of definite-lived intangible assets remained relatively constant, hovering around 6,500 million US dollars throughout the period, indicating no major acquisitions or disposals.
- Accumulated amortization
- There was a steady increase in accumulated amortization from -283 million in 2015 to -1,318 million by 2019. This reflects ongoing amortization expense recognition and the aging of definite-lived intangible assets.
- Definite-lived intangible assets (net)
- Net definite-lived intangible assets showed a gradual decline from 6,296 million in 2015 to 5,252 million in 2019, consistent with the accumulation of amortization and a lack of significant new asset additions.
- Total intangible assets
- Total intangible assets peaked around 62,120 million in 2015 but then declined consistently to 48,652 million by 2019. This decline is primarily driven by reductions in indefinite-lived assets and goodwill.
- Goodwill and intangible assets combined
- The combined total of goodwill and intangible assets reached its highest point at approximately 105,171 million in 2015 before contracting substantially to 84,198 million by 2019. This reflects overall decreases in both goodwill and intangible assets, indicative of impairments, disposals, or strategic shifts in asset management.
Adjustments to Financial Statements: Removal of Goodwill
Kraft Heinz Co., adjustments to financial statements
US$ in millions
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Total Assets
- Reported total assets showed a gradual decline from 122,973 million US dollars in 2015 to 101,450 million US dollars in 2019. Adjusted total assets, which exclude goodwill, also decreased steadily from 79,922 million US dollars in 2015 to 65,904 million US dollars in 2019. This downward trend suggests a reduction in asset base over the period, with a consistent difference between reported and adjusted figures indicating persistent goodwill presence.
- Shareholders' Equity
- Reported shareholders’ equity started at 57,685 million US dollars in 2015 and experienced fluctuations, increasing to 66,034 million in 2017 before declining to approximately 51,623 million by 2019. Adjusted shareholders’ equity, which removes goodwill effects, was significantly lower, beginning at 14,634 million US dollars in 2015, rising to 21,210 million in 2017, then dropping to 16,077 million in 2019. Both reported and adjusted equity reflect volatility, with a notable drop after 2017, implying potential write-downs or losses impacting equity levels.
- Net Income (Loss) Attributable to Kraft Heinz
- Reported net income showed significant variability, beginning with a modest profit of 634 million US dollars in 2015, surging to 10,999 million in 2017, then swinging to a substantial loss of -10,192 million in 2018, before returning to a small profit of 1,935 million in 2019. Adjusted net income followed a similar pattern but reflected less extreme fluctuation on the loss side during 2018 with a reduced loss of -3,184 million, and a recovery to 3,132 million in 2019. This indicates that goodwill and other adjustments had a material impact on reported profitability, particularly in 2018, where goodwill impairment or write-offs likely caused the significant drop.
- Overall Trends and Insights
- Over the five-year period, the data shows a decline in total assets and equity, both reported and adjusted, suggesting a contraction in the company's financial base. The large swing in net income, especially the heavy loss in 2018, highlights volatility in earnings, partly attributable to goodwill-related impairments as reflected by reconciled adjusted numbers. The adjusted figures offer a clearer picture of operational profitability, indicating that underlying business performance, while impacted, was less severe than the reported losses suggest. The recovery in net income and stabilization of adjusted equity by 2019 point to some financial resilience and efforts to address earlier downturns.
Kraft Heinz Co., Financial Data: Reported vs. Adjusted
Adjusted Financial Ratios: Removal of Goodwill (Summary)
Kraft Heinz Co., adjusted financial ratios
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
- Net Profit Margin
- The reported net profit margin showed a fluctuating trend, increasing significantly from 3.46% in 2015 to 41.93% in 2017, followed by a steep decline to -38.8% in 2018 and then recovering to 7.75% in 2019. The adjusted net profit margin followed a similar pattern but with less volatility in 2018, where it was -12.12% instead of -38.8%, and improved further to 12.54% in 2019. This suggests that adjustment for goodwill had a stabilizing effect on profitability measures.
- Total Asset Turnover
- The reported total asset turnover ratio improved moderately from 0.15 in 2015 to 0.25 in 2018 and remained stable at 0.25 in 2019. In contrast, the adjusted total asset turnover was consistently higher, starting at 0.23 in 2015, peaking at 0.39 in 2018, then slightly declining to 0.38 in 2019. This indicates better asset utilization when adjustments are made for goodwill, with a general trend of improving efficiency over the period.
- Financial Leverage
- Reported financial leverage ratios remained relatively stable, around 2.0, fluctuating slightly from 2.13 in 2015 to 1.97 in 2019. Adjusted financial leverage was notably higher and more variable, starting at 5.46 in 2015, rising to 5.77 in 2016, then decreasing to 3.56 in 2017 before rising again to 4.42 in 2018 and falling to 4.1 in 2019. This demonstrates significantly higher leverage levels after adjustments, reflecting different capital structure implications when goodwill is excluded.
- Return on Equity (ROE)
- Reported ROE displayed a rising pattern from 1.1% in 2015 to 16.66% in 2017, followed by a sharp negative value of -19.73% in 2018, and a modest recovery to 3.75% in 2019. The adjusted ROE showed substantially higher values, peaking sharply at 51.86% in 2017, dropping to -21.01% in 2018, and rebounding to 19.48% in 2019. The adjusted figures indicate that removing goodwill impacts had a pronounced effect on equity returns, amplifying both gains and losses.
- Return on Assets (ROA)
- Reported ROA moved upward from 0.52% in 2015 to 9.15% in 2017, dropped sharply to -9.85% in 2018, and slightly recovered to 1.91% in 2019. Adjusted ROA was consistently higher, increasing from 0.79% in 2015 to 14.59% in 2017, declining to -4.76% in 2018, and rising to 4.75% in 2019. The pattern suggests asset profitability was generally stronger after adjustments, with significant declines in 2018 in both reported and adjusted metrics, followed by partial recovery.
Kraft Heinz Co., Financial Ratios: Reported vs. Adjusted
Adjusted Net Profit Margin
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
2019 Calculations
1 Net profit margin = 100 × Net income (loss) attributable to Kraft Heinz ÷ Net sales
= 100 × ÷ =
2 Adjusted net profit margin = 100 × Adjusted net income (loss) attributable to Kraft Heinz ÷ Net sales
= 100 × ÷ =
- Net Income Trends
- The reported net income attributable to the company exhibited considerable volatility over the five-year period. Starting at $634 million in 2015, the figure surged to $3,632 million in 2016 and peaked at $10,999 million in 2017. However, a significant downturn followed in 2018, with reported net income showing a substantial loss of $10,192 million. The year 2019 saw a recovery to a positive net income of $1,935 million.
- The adjusted net income followed a similar initial growth pattern, reaching $10,999 million in 2017. However, the adjusted figures show a less severe loss in 2018 at $3,184 million, indicating that adjustments had a material impact in mitigating reported losses. In 2019, adjusted net income rebounded to $3,132 million, suggesting an underlying operational recovery when excluding irregular items.
- Net Profit Margin Patterns
- The reported net profit margin mirrored the net income volatility, starting from a modest 3.46% in 2015, increasing significantly to 13.71% in 2016, and peaking at an exceptional 41.93% in 2017. This was followed by a sharp reversal in 2018, with a negative margin of -38.8%, reflecting extraordinary losses during that year. By 2019, the margin had improved to a positive 7.75%.
- Adjusted net profit margin offers a clearer view of operating profitability by excluding certain items. It maintained the same values as the reported margin through 2017 but declined less drastically in 2018 to -12.12%. This less severe negative margin indicates that a portion of the losses was due to non-operational factors. The adjusted margin further improved to 12.54% in 2019, surpassing the reported margin and signaling better underlying profitability.
- Insights on Financial Performance
- The data reveals a peak in profitability in 2017, followed by a sharp decline in 2018. The discrepancy between reported and adjusted figures in 2018 and 2019 highlights the impact of non-recurring charges or goodwill adjustments on reported results. The improved adjusted figures in 2019 imply progress in stabilizing operational performance. Overall, the financial performance demonstrates periods of significant growth interrupted by a challenging year, with subsequent recovery indicated by adjusted results.
Adjusted Total Asset Turnover
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
2019 Calculations
1 Total asset turnover = Net sales ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= ÷ =
- Reported Total Assets
- The reported total assets show a declining trend over the period from 2015 to 2019. Starting at 122,973 million US dollars in 2015, there is a gradual decrease each year, reaching 101,450 million US dollars by 2019. This suggests a reduction in the company's asset base within the five-year span.
- Adjusted Total Assets
- Adjusted total assets, which exclude goodwill, also demonstrate a consistent decline from 79,922 million US dollars in 2015 to 65,904 million US dollars in 2019. The reduction is somewhat more pronounced on an adjusted basis, indicating that intangible assets such as goodwill represent a significant portion of the total assets and their removal impacts the overall asset base substantially.
- Reported Total Asset Turnover
- The reported total asset turnover ratio exhibits improvement over the period. It increased from 0.15 times in 2015 to 0.25 times in 2018 and remained stable at 0.25 times in 2019. This indicates an enhancement in the company’s efficiency in utilizing its total assets to generate revenue based on reported figures.
- Adjusted Total Asset Turnover
- The adjusted total asset turnover ratio, excluding goodwill, shows a stronger and more consistent increase over the years. It rose from 0.23 times in 2015 to a peak of 0.39 times in 2018 before a slight decline to 0.38 times in 2019. This trend suggests an improvement in operational efficiency when intangible assets are excluded, reflecting a more efficient use of the tangible asset base.
- Overall Insights
- The decreasing trend in both reported and adjusted total assets indicates a contraction of the asset base. However, the improvement in both reported and adjusted total asset turnover ratios suggests that the company has been increasing its asset utilization efficiency over time. The adjusted figures show a clearer picture of operational performance by excluding goodwill, pointing to enhanced efficiency in generating revenue from tangible assets. The slight decrease in adjusted asset turnover in 2019 may be an early signal of changing operational dynamics that should be monitored going forward.
Adjusted Financial Leverage
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
2019 Calculations
1 Financial leverage = Total assets ÷ Shareholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= ÷ =
- Total Assets
- The reported total assets demonstrated a slight decline over the five-year period, decreasing from 122,973 million USD in 2015 to 101,450 million USD in 2019. This reflects a reduction of approximately 17.5%. The adjusted total assets, which exclude goodwill, followed a similar downward trend, falling from 79,922 million USD in 2015 to 65,904 million USD in 2019, signifying a more pronounced reduction of around 17.6%. This parallel decline in both reported and adjusted figures indicates a consistent contraction in the asset base.
- Shareholders’ Equity
- Reported shareholders’ equity initially remained relatively stable, decreasing marginally from 57,685 million USD to 57,358 million USD between 2015 and 2016, then increased substantially to 66,034 million USD in 2017. However, this upward trend reversed sharply in 2018 and 2019, with equity dropping to about 51,657 million USD and 51,623 million USD, respectively. In contrast, adjusted shareholders’ equity, excluding goodwill, showed greater volatility but generally remained at lower absolute levels. It declined from 14,634 million USD in 2015 to 13,233 million USD in 2016, increased markedly to 21,210 million USD in 2017, before decreasing again to 15,154 million USD in 2018, and slightly recovering to 16,077 million USD in 2019. The fluctuations suggest significant changes in goodwill or intangible asset adjustments affecting reported equity.
- Financial Leverage
- The reported financial leverage ratio exhibited a moderate decline from 2.13 in 2015 to 1.97 in 2019, indicating a slight reduction in the reliance on debt financing relative to shareholders' equity. Conversely, the adjusted financial leverage ratio showed greater volatility, starting high at 5.46 in 2015, peaking at 5.77 in 2016, before decreasing sharply to 3.56 in 2017, then increasing again to 4.42 in 2018 and decreasing to 4.1 in 2019. These higher adjusted leverage ratios compared to reported figures highlight the impact of excluding goodwill, which reduces equity and thus increases leverage ratios, reflecting a higher risk profile when intangible assets are not considered.
- Overall Trends and Insights
- The data reveals a consistent contraction in both total assets and equity, with fluctuations particularly notable in adjusted shareholders’ equity. The divergence between reported and adjusted financial metrics underscores the material effect of goodwill and intangible assets on the balance sheet. The adjusted measures suggest a more leveraged and potentially riskier financial position than the reported figures imply. The volatility in adjusted equity and leverage ratios could reflect impairments, write-downs, or changes in the valuation of intangible assets during the period. The reported data presents a more stable leverage position, whereas the adjusted figures highlight underlying financial pressures and asset quality considerations.
Adjusted Return on Equity (ROE)
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
2019 Calculations
1 ROE = 100 × Net income (loss) attributable to Kraft Heinz ÷ Shareholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Adjusted net income (loss) attributable to Kraft Heinz ÷ Adjusted shareholders’ equity
= 100 × ÷ =
- Net Income Trends
- The reported net income attributable to the company showed significant fluctuations over the reviewed period. It increased sharply from $634 million in 2015 to $10,999 million in 2017, indicating substantial profitability growth. However, in 2018, there was a notable decline resulting in a reported loss of $10,192 million, followed by a partial recovery to a profit of $1,935 million in 2019.
- The adjusted net income, which accounts for goodwill adjustments, exhibited a similar pattern but with less volatility in 2018. The adjusted loss in 2018 was $3,184 million, significantly smaller in magnitude than the reported loss, and the adjusted profit rebounded to $3,132 million in 2019, exceeding the reported figure for that year.
- Shareholders’ Equity Trends
- Reported shareholders' equity remained relatively stable from 2015 to 2017, increasing from $57,685 million to $66,034 million, before decreasing significantly in 2018 to $51,657 million and remaining nearly flat in 2019 at $51,623 million.
- The adjusted shareholders' equity, which excludes goodwill, displayed lower values compared to reported equity, reflecting the impact of goodwill on reported figures. It increased from $14,634 million in 2015 to $21,210 million in 2017, declined sharply to $15,154 million in 2018, and then slightly recovered to $16,077 million in 2019.
- Return on Equity (ROE) Analysis
- The reported ROE followed the net income trend, starting very low at 1.1% in 2015, rising to a peak of 16.66% in 2017, then turning negative at -19.73% in 2018, and rebounding to 3.75% in 2019. This indicates deteriorating profitability relative to equity during 2018 and a weak recovery afterward.
- The adjusted ROE, which excludes goodwill, was consistently higher than the reported ROE except in 2018 where it remained negative. It rose from 4.33% in 2015 to an exceptionally high 51.86% in 2017, fell to -21.01% in 2018, and recovered more substantially to 19.48% in 2019. This suggests that excluding goodwill adjustments presents a more optimistic picture of profitability efficiency.
- Overall Insights
- The data indicate a period of strong financial performance from 2015 through 2017, marked by rapid growth in net income and returns on equity. The year 2018 stands out as a downturn with significant losses and reductions in equity, likely influenced by impairments or other extraordinary items affecting goodwill. By 2019, partial recovery occurred, particularly in the adjusted metrics, reflecting improvements once the effects of goodwill are excluded.
- The divergence between reported and adjusted figures emphasizes the impact of goodwill on financial results, with adjusted figures portraying a less severe decline and a stronger recovery, underscoring the importance of considering both perspectives in performance analysis.
Adjusted Return on Assets (ROA)
Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
2019 Calculations
1 ROA = 100 × Net income (loss) attributable to Kraft Heinz ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Adjusted net income (loss) attributable to Kraft Heinz ÷ Adjusted total assets
= 100 × ÷ =
- Net Income (Loss) Attributable to Kraft Heinz
- The reported net income showed a significant peak in 2017 at 10,999 million USD, followed by a sharp decline into a substantial loss of 10,192 million USD in 2018. This loss was partially reversed in 2019 with a net income of 1,935 million USD. The adjusted net income follows a similar trend, though the loss in 2018 is less severe at 3,184 million USD, indicating that adjustments reduce the impact of extraordinary items or non-recurring expenses. Adjusted net income increased to 3,132 million USD in 2019, showing a recovery trend that is more pronounced than that suggested by reported figures.
- Total Assets
- The reported total assets decreased consistently from 122,973 million USD in 2015 to 101,450 million USD in 2019, representing a steady contraction of the asset base over the five-year period. Similarly, the adjusted total assets, which exclude goodwill or intangible adjustments, declined from 79,922 million USD to 65,904 million USD. This reduction in adjusted assets parallels the trend seen in reported assets, highlighting an overall downsizing or asset write-down across the period.
- Return on Assets (ROA)
- Reported ROA values increased from 0.52% in 2015 to a peak of 9.15% in 2017, followed by a drastic drop to -9.85% in 2018, before rebounding mildly to 1.91% in 2019. This volatility reflects the trends seen in net income, with profitability peaking and then suffering large losses before beginning recovery. The adjusted ROA shows a similar pattern but with generally higher values, peaking at 14.59% in 2017 and experiencing a less severe decline in 2018 (-4.76%) than the reported figure. The adjusted ROA also recovers more strongly in 2019 to 4.75%, suggesting that the underlying asset returns, excluding goodwill impairments or other adjustments, are more favorable.
- Overall Trends
- The data reveals a period of strong profitability and asset utilization culminating in 2017, followed by a significant downturn in 2018 characterized by both reported and adjusted losses and negative returns. The subsequent year shows signs of recovery, more evident in adjusted figures than reported ones. The continuous decline in total assets indicates potential disposals, impairments, or strategic downsizing efforts. Adjusted metrics consistently show less volatility and better performance, highlighting the impact of goodwill and special items on reported results.