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Analysis of Goodwill and Intangible Assets
Difficulty: Advanced
- Goodwill and Intangible Assets Accounting Policy
- Goodwill and Intangible Assets Disclosure
- Analyst Adjustments: Removal of Goodwill
- Adjusted Ratios: Removal of Goodwill (Summary)
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Goodwill and Intangible Assets Accounting Policy
The fair value of acquired intangible assets is typically determined using the "income method" utilizing Level 3 fair value inputs. The market participant valuations assume a global view considering all potential jurisdictions and indications based on discounted after-tax cash flow projections, risk adjusted for estimated probability of technical and regulatory success (for IPRD).
Finite-lived intangible assets, including licenses, developed technology rights and IPRD projects that reach commercialization are amortized on a straight-line basis over their estimated useful life. Estimated useful lives are determined considering the period the assets are expected to contribute to future cash flows.
Goodwill is tested at least annually for impairment by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that the fair value of net assets are below their carrying amounts. Examples of qualitative factors assessed include BMS’s share price, financial performance compared to budgets, long-term financial plans, macroeconomic, industry and market conditions as well as the substantial excess of fair value over the carrying value of net assets from the annual impairment test performed in a prior year. Each relevant factor is assessed both individually and in the aggregate.
IPRD is tested for impairment on an annual basis and more frequently if events occur or circumstances change that would indicate a potential reduction in the fair values of the assets below their carrying value. Impairment charges are recognized to the extent the carrying value of IPRD is determined to exceed its fair value.
Finite-lived intangible assets are tested for impairment when facts or circumstances suggest that the carrying value of the asset may not be recoverable. If the carrying value exceeds the projected undiscounted pretax cash flows of the intangible asset, an impairment loss equal to the excess of the carrying value over the estimated fair value (discounted after-tax cash flows) is recognized.
Source: 10-K (filing date: 2018-02-13).
Goodwill and Intangible Assets Disclosure
Bristol-Myers Squibb Co., Statement of Financial Position, Goodwill and Intangible Assets
USD $ in millions
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Based on: 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
| Item | Description | The company |
|---|---|---|
| Other 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. | Bristol-Myers Squibb Co.’s other intangible assets declined 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. | Bristol-Myers Squibb Co.’s goodwill declined from 2015 to 2016 and from 2016 to 2017. |
| Goodwill and other 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. | Bristol-Myers Squibb Co.’s goodwill and other intangible assets declined from 2015 to 2016 and from 2016 to 2017. |
Analyst Adjustments: Removal of Goodwill
Bristol-Myers Squibb Co., adjustments to financial data
USD $ in millions
Based on: 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
Bristol-Myers Squibb Co., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Goodwill (Summary)
Bristol-Myers Squibb Co., adjusted ratios
Based on: 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Bristol-Myers Squibb Co.’s adjusted total asset turnover improved from 2015 to 2016 and 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. |
Bristol-Myers Squibb Co.’s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Bristol-Myers Squibb Co.’s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Bristol-Myers Squibb Co.’s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Bristol-Myers Squibb Co., Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
2017 Calculations
1 Total asset turnover = Revenues ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Bristol-Myers Squibb Co.’s adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
2017 Calculations
1 Financial leverage = Total assets ÷ Total Bristol-Myers Squibb Company shareholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Bristol-Myers Squibb Company shareholders’ equity
= ÷ =
| 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. |
Bristol-Myers Squibb Co.’s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
2017 Calculations
1 ROE = 100 × Net earnings attributable to BMS ÷ Total Bristol-Myers Squibb Company shareholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Net earnings attributable to BMS ÷ Adjusted total Bristol-Myers Squibb Company shareholders’ equity
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Bristol-Myers Squibb Co.’s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13), 10-K (filing date: 2014-02-14).
2017 Calculations
1 ROA = 100 × Net earnings attributable to BMS ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Net earnings attributable to BMS ÷ Adjusted total assets
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Bristol-Myers Squibb Co.’s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |