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CVS Health Corp. (CVS)

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 Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Goodwill and Intangible Assets Accounting Policy

Goodwill and other indefinitely-lived assets

Goodwill and other indefinitely-lived assets are not amortized, but are subject to impairment reviews annually, or more frequently if necessary.

Intangible assets

Purchased customer contracts and relationships are amortized on a straight-line basis over their estimated useful lives between 9 and 20 years. Purchased customer lists are amortized on a straight-line basis over their estimated useful lives of up to 10 years. Purchased leases are amortized on a straight-line basis over the remaining life of the lease.

Source: 10-K (filing date: 2018-02-14).

Goodwill and Intangible Assets Disclosure

CVS Health Corp., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014		Dec 31, 2013
	Customer contracts and relationships and covenants not to compete
	Favorable leases and other
	Finitely-lived intangible assets, gross carrying amount
	Accumulated amortization
	Finitely-lived intangible assets, net carrying amount
	Trademark
	Indefinitely-lived intangible assets
	Intangible assets
	Goodwill
	Goodwill and other intangibles

Based on: 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10), 10-K (filing date: 2014-02-11).

Item	Description	The company
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.	CVS Health Corp.’s intangible assets declined from 2015 to 2016 but then slightly increased 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.	CVS Health Corp.’s goodwill increased from 2015 to 2016 and from 2016 to 2017.
Goodwill and other intangibles	Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.	CVS Health Corp.’s goodwill and other intangibles declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

Analyst Adjustments: Removal of Goodwill

CVS Health Corp., adjustments to financial data

USD $ in millions

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Goodwill
	Total assets (adjusted)
	Adjustment to Total CVS Health Shareholders’ Equity
	Total CVS Health shareholders’ equity (as reported)
	Less: Goodwill
	Total CVS Health shareholders’ equity (adjusted)
	Adjustment to Net Income Attributable To CVS Health
	Net income attributable to CVS Health (as reported)
	Add: Goodwill impairments
	Net income attributable to CVS Health (adjusted)

Based on: 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10), 10-K (filing date: 2014-02-11).

CVS Health Corp., Financial Data: Reported vs. Adjusted

Adjusted Ratios: Removal of Goodwill (Summary)

CVS Health Corp., adjusted ratios

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	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: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10), 10-K (filing date: 2014-02-11).

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	CVS Health Corp.’s adjusted net profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	CVS Health Corp.’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.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	CVS Health Corp.’s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.

CVS Health Corp., Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	As Reported
	Selected Financial Data (USD $ in millions)
	Net income attributable to CVS Health
	Net revenues
	Ratio
	Net profit margin¹
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Adjusted net income attributable to CVS Health
	Net revenues
	Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10), 10-K (filing date: 2014-02-11).

2017 Calculations

¹ Net profit margin = 100 × Net income attributable to CVS Health ÷ Net revenues
= 100 × hidden ÷ hidden = hidden

² Adjusted net profit margin = 100 × Adjusted net income attributable to CVS Health ÷ Net revenues
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	CVS Health Corp.’s adjusted net profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Total Asset Turnover

		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
	Total assets
	Ratio
	Total asset turnover¹
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Net revenues
	Adjusted total assets
	Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10), 10-K (filing date: 2014-02-11).

2017 Calculations

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

² Adjusted total asset turnover = Net revenues ÷ 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.	CVS Health Corp.’s adjusted total asset turnover improved from 2015 to 2016 and from 2016 to 2017.

Adjusted Financial Leverage

		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
	Total CVS Health shareholders’ equity
	Ratio
	Financial leverage¹
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Adjusted total assets
	Adjusted total CVS Health shareholders’ equity
	Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10), 10-K (filing date: 2014-02-11).

2017 Calculations

¹ Financial leverage = Total assets ÷ Total CVS Health shareholders’ equity
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total CVS Health 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.

Adjusted Return on Equity (ROE)

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	As Reported
	Selected Financial Data (USD $ in millions)
	Net income attributable to CVS Health
	Total CVS Health shareholders’ equity
	Ratio
	ROE¹
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Adjusted net income attributable to CVS Health
	Adjusted total CVS Health shareholders’ equity
	Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10), 10-K (filing date: 2014-02-11).

2017 Calculations

¹ ROE = 100 × Net income attributable to CVS Health ÷ Total CVS Health shareholders’ equity
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Adjusted net income attributable to CVS Health ÷ Adjusted total CVS Health 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.

Adjusted Return on Assets (ROA)

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	As Reported
	Selected Financial Data (USD $ in millions)
	Net income attributable to CVS Health
	Total assets
	Ratio
	ROA¹
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Adjusted net income attributable to CVS Health
	Adjusted total assets
	Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10), 10-K (filing date: 2014-02-11).

2017 Calculations

¹ ROA = 100 × Net income attributable to CVS Health ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Adjusted net income attributable to CVS Health ÷ 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.	CVS Health Corp.’s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.

	CVS Health Corp.	Other companies (not purchased previously)
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Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
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Long-term Trends
Analysis
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Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality