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Microsoft Excel LibreOffice Calc

Kraft Heinz Co. (KHC)


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Kraft Heinz’s goodwill balance consists of 20 reporting units, and the indefinite-lived intangible asset balance primarily consists of a number of individual brands. Kraft Heinz tests the reporting units and brands for impairment annually as of the first day of the second quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit or brand is less than its carrying amount. Such events and circumstances could include a sustained decrease in Kraft Heinz’s market capitalization, increased competition or unexpected loss of market share, increased input costs beyond projections (for example due to regulatory or industry changes), disposals of significant brands or components of the business, unexpected business disruptions (for example due to a natural disaster or loss of a customer, supplier, or other significant business relationship), unexpected significant declines in operating results, or significant adverse changes in the markets in which Kraft Heinz operates. Kraft Heinz tests reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. Kraft Heinz tests brands for impairment by comparing the estimated fair value of each brand with its carrying amount. If the carrying amount of a reporting unit or brand exceeds its estimated fair value, Kraft Heinz records an impairment loss based on the difference between fair value and carrying amount, in the case of reporting units, not to exceed to the associated carrying amount of goodwill.

Definite-lived intangible assets are amortized on a straight-line basis over the estimated periods benefited. Kraft Heinz reviews definite-lived intangible assets for impairment when conditions exist that indicate the carrying amount of the assets may not be recoverable. Such conditions could include significant adverse changes in the business climate, current-period operating or cash flow losses, significant declines in forecasted operations, or a current expectation that an asset group will be disposed of before the end of its useful life. Kraft Heinz performs undiscounted operating cash flow analyses to determine if an impairment exists. When testing for impairment of definite-lived intangible assets held for use, Kraft Heinz groups assets at the lowest level for which cash flows are separately identifiable. If an impairment is determined to exist, the loss is calculated based on estimated fair value. Impairment losses on definite-lived intangible assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

Source: 10-K (filing date: 2019-06-07).


Goodwill and Intangible Assets Disclosure

Kraft Heinz Co., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
Goodwill hidden hidden hidden hidden
Indefinite-lived intangible assets hidden hidden hidden hidden
Trademarks hidden hidden hidden hidden
Customer-related assets hidden hidden hidden hidden
Other hidden hidden hidden hidden
Definite-lived intangible assets, gross hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden
Definite-lived intangible assets, net hidden hidden hidden hidden
Intangible assets hidden hidden hidden hidden
Goodwill and intangible assets hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-07), 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-03-03).

Item Description The company
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. Kraft Heinz Co.’s goodwill increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
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. Kraft Heinz Co.’s intangible assets increased from 2016 to 2017 but then declined significantly 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. Kraft Heinz Co.’s goodwill and intangible assets increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Analyst Adjustments: Removal of Goodwill

Kraft Heinz Co., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden
Adjustment to Shareholders’ Equity
Shareholders’ equity (as reported) hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden
Shareholders’ equity (adjusted) hidden hidden hidden hidden
Adjustment to Net Income (loss) Attributable To Kraft Heinz
Net income (loss) attributable to Kraft Heinz (as reported) hidden hidden hidden hidden
Add: Goodwill impairment losses hidden hidden hidden hidden
Net income (loss) attributable to Kraft Heinz (adjusted) hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-07), 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-03-03).


Kraft Heinz Co., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Goodwill (Summary)

Kraft Heinz Co., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
Net Profit Margin
Reported net profit margin hidden hidden hidden hidden
Adjusted net profit margin hidden hidden hidden hidden
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-07), 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-03-03).

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Kraft Heinz Co.’s adjusted net profit margin improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Kraft Heinz Co.’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.
Kraft Heinz Co.’s adjusted financial leverage declined from 2016 to 2017 but then slightly increased from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Kraft Heinz Co.’s adjusted ROE improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Kraft Heinz Co.’s adjusted ROA improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

Kraft Heinz Co., Ratios: Reported vs. Adjusted


Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (USD $ in millions)
Net income (loss) attributable to Kraft Heinz hidden hidden hidden hidden
Net sales hidden hidden hidden hidden
Ratio
Net profit margin1 hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted net income (loss) attributable to Kraft Heinz hidden hidden hidden hidden
Net sales hidden hidden hidden hidden
Ratio
Adjusted net profit margin2 hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-07), 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-03-03).

2018 Calculations

1 Net profit margin = 100 × Net income (loss) attributable to Kraft Heinz ÷ Net sales
= 100 × hidden ÷ hidden = hidden

2 Adjusted net profit margin = 100 × Adjusted net income (loss) attributable to Kraft Heinz ÷ Net sales
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Kraft Heinz Co.’s adjusted net profit margin improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (USD $ in millions)
Net sales hidden hidden hidden hidden
Total assets hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net sales hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-07), 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-03-03).

2018 Calculations

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

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

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Kraft Heinz Co.’s adjusted total asset turnover improved from 2016 to 2017 and from 2017 to 2018.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (USD $ in millions)
Total assets hidden hidden hidden hidden
Shareholders’ equity hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted total assets hidden hidden hidden hidden
Adjusted shareholders’ equity hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-07), 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-03-03).

2018 Calculations

1 Financial leverage = Total assets ÷ Shareholders’ equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= hidden ÷ hidden = hidden

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.
Kraft Heinz Co.’s adjusted financial leverage declined from 2016 to 2017 but then slightly increased from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (USD $ in millions)
Net income (loss) attributable to Kraft Heinz hidden hidden hidden hidden
Shareholders’ equity hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted net income (loss) attributable to Kraft Heinz hidden hidden hidden hidden
Adjusted shareholders’ equity hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-07), 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-03-03).

2018 Calculations

1 ROE = 100 × Net income (loss) attributable to Kraft Heinz ÷ Shareholders’ equity
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Adjusted net income (loss) attributable to Kraft Heinz ÷ Adjusted shareholders’ equity
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Kraft Heinz Co.’s adjusted ROE improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (USD $ in millions)
Net income (loss) attributable to Kraft Heinz hidden hidden hidden hidden
Total assets hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted net income (loss) attributable to Kraft Heinz hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-07), 10-K (filing date: 2018-02-16), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-03-03).

2018 Calculations

1 ROA = 100 × Net income (loss) attributable to Kraft Heinz ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Adjusted net income (loss) attributable to Kraft Heinz ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Kraft Heinz Co.’s adjusted ROA improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.