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Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Definite-lived intangible assets are amortized over their estimated useful lives up to 25 years.

Source: 10-K (filing date: 2018-02-27).


Goodwill and Intangible Assets Disclosure

Altria Group Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Definite-lived intangible assets, gross carrying amount 465  465  465  465  464 
Accumulated amortization (190) (169) (148) (127) (107)
Definite-lived intangible assets, net 275  296  317  338  357 
Indefinite-lived intangible assets 12,125  11,740  11,711  11,711  11,701 
Other intangible assets, net 12,400  12,036  12,028  12,049  12,058 
Goodwill 5,307  5,285  5,285  5,285  5,174 
Goodwill and other intangible assets, net 17,707  17,321  17,313  17,334  17,232 

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-26).

Item Description The company
Other intangible assets, net Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Altria Group Inc.’s other intangible assets, net increased from 2015 to 2016 and from 2016 to 2017.
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.
Goodwill and other intangible assets, net Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Altria Group Inc.’s goodwill and other intangible assets, net increased from 2015 to 2016 and from 2016 to 2017.

Analyst Adjustments: Removal of Goodwill

Altria Group Inc., adjustments to financial data

USD $ in millions

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Total Assets
Total assets (as reported) 43,202  45,932  32,535  34,475  34,859 
Less: Goodwill 5,307  5,285  5,285  5,285  5,174 
Total assets (adjusted) 37,895  40,647  27,250  29,190  29,685 
Adjustment to Stockholders’ Equity Attributable To Altria Group, Inc.
Stockholders’ equity attributable to Altria Group, Inc. (as reported) 15,377  12,770  2,880  3,014  4,119 
Less: Goodwill 5,307  5,285  5,285  5,285  5,174 
Stockholders’ equity attributable to Altria Group, Inc. (adjusted) 10,070  7,485  (2,405) (2,271) (1,055)

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-26).


Altria Group Inc., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Goodwill (Summary)

Altria Group Inc., adjusted ratios

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Total Asset Turnover
Reported total asset turnover 0.59 0.56 0.78 0.71 0.70
Adjusted total asset turnover 0.67 0.63 0.93 0.84 0.82
Financial Leverage
Reported financial leverage 2.81 3.60 11.30 11.44 8.46
Adjusted financial leverage 3.76 5.43
Return on Equity (ROE)
Reported ROE 66.48% 111.50% 181.98% 168.21% 110.10%
Adjusted ROE 101.51% 190.23%
Return on Assets (ROA)
Reported ROA 23.66% 31.00% 16.11% 14.71% 13.01%
Adjusted ROA 26.97% 35.03% 19.23% 17.37% 15.28%

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-26).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Altria Group Inc.’s adjusted total asset turnover deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.
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.
Altria Group Inc.’s adjusted financial leverage increased from 2015 to 2016 but then slightly declined from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Altria Group Inc.’s adjusted ROE improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Altria Group Inc.’s adjusted ROA improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.

Altria Group Inc., Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net revenues 25,576  25,744  25,434  24,522  24,466 
Total assets 43,202  45,932  32,535  34,475  34,859 
Ratio
Total asset turnover1 0.59 0.56 0.78 0.71 0.70
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net revenues 25,576  25,744  25,434  24,522  24,466 
Adjusted total assets 37,895  40,647  27,250  29,190  29,685 
Ratio
Adjusted total asset turnover2 0.67 0.63 0.93 0.84 0.82

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-26).

2017 Calculations

1 Total asset turnover = Net revenues ÷ Total assets
= 25,576 ÷ 43,202 = 0.59

2 Adjusted total asset turnover = Net revenues ÷ Adjusted total assets
= 25,576 ÷ 37,895 = 0.67

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Altria Group Inc.’s adjusted total asset turnover deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Total assets 43,202  45,932  32,535  34,475  34,859 
Stockholders’ equity attributable to Altria Group, Inc. 15,377  12,770  2,880  3,014  4,119 
Ratio
Financial leverage1 2.81 3.60 11.30 11.44 8.46
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted total assets 37,895  40,647  27,250  29,190  29,685 
Adjusted stockholders’ equity attributable to Altria Group, Inc. 10,070  7,485  (2,405) (2,271) (1,055)
Ratio
Adjusted financial leverage2 3.76 5.43

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-26).

2017 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity attributable to Altria Group, Inc.
= 43,202 ÷ 15,377 = 2.81

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity attributable to Altria Group, Inc.
= 37,895 ÷ 10,070 = 3.76

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.
Altria Group Inc.’s adjusted financial leverage increased from 2015 to 2016 but then slightly declined from 2016 to 2017.

Adjusted Return on Equity (ROE)

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net earnings attributable to Altria Group, Inc. 10,222  14,239  5,241  5,070  4,535 
Stockholders’ equity attributable to Altria Group, Inc. 15,377  12,770  2,880  3,014  4,119 
Ratio
ROE1 66.48% 111.50% 181.98% 168.21% 110.10%
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net earnings attributable to Altria Group, Inc. 10,222  14,239  5,241  5,070  4,535 
Adjusted stockholders’ equity attributable to Altria Group, Inc. 10,070  7,485  (2,405) (2,271) (1,055)
Ratio
Adjusted ROE2 101.51% 190.23%

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-26).

2017 Calculations

1 ROE = 100 × Net earnings attributable to Altria Group, Inc. ÷ Stockholders’ equity attributable to Altria Group, Inc.
= 100 × 10,222 ÷ 15,377 = 66.48%

2 Adjusted ROE = 100 × Net earnings attributable to Altria Group, Inc. ÷ Adjusted stockholders’ equity attributable to Altria Group, Inc.
= 100 × 10,222 ÷ 10,070 = 101.51%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Altria Group Inc.’s adjusted ROE improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net earnings attributable to Altria Group, Inc. 10,222  14,239  5,241  5,070  4,535 
Total assets 43,202  45,932  32,535  34,475  34,859 
Ratio
ROA1 23.66% 31.00% 16.11% 14.71% 13.01%
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net earnings attributable to Altria Group, Inc. 10,222  14,239  5,241  5,070  4,535 
Adjusted total assets 37,895  40,647  27,250  29,190  29,685 
Ratio
Adjusted ROA2 26.97% 35.03% 19.23% 17.37% 15.28%

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-26).

2017 Calculations

1 ROA = 100 × Net earnings attributable to Altria Group, Inc. ÷ Total assets
= 100 × 10,222 ÷ 43,202 = 23.66%

2 Adjusted ROA = 100 × Net earnings attributable to Altria Group, Inc. ÷ Adjusted total assets
= 100 × 10,222 ÷ 37,895 = 26.97%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Altria Group Inc.’s adjusted ROA improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.