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Microsoft Excel LibreOffice Calc


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Coca-Cola classifies intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. Coca-Cola determines the useful lives of the identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors Coca-Cola considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, Coca-Cola's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, primarily on a straight-line basis, over their useful lives, generally ranging from 1 to 20 years.

When facts and circumstances indicate that the carrying value of definite-lived intangible assets may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of sales volume and the resulting profit and cash flows expected to result from the use of the asset or asset group and its eventual disposition. These estimated future cash flows are consistent with those Coca-Cola uses in the internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, Coca-Cola recognizes an impairment loss. The impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the fair value. Coca-Cola uses a variety of methodologies to determine the fair value of these assets, including discounted cash flow models, which are consistent with the assumptions Coca-Cola believes hypothetical marketplace participants would use.

Coca-Cola tests intangible assets determined to have indefinite useful lives, including trademarks, franchise rights and goodwill, for impairment annually, or more frequently if events or circumstances indicate that assets might be impaired. Coca-Cola Company performs these annual impairment reviews as of the first day of the third fiscal quarter. Coca-Cola uses a variety of methodologies in conducting impairment assessments of indefinite-lived intangible assets, including, but not limited to, discounted cash flow models, which are based on the assumptions Coca-Cola believes hypothetical marketplace participants would use. For indefinite-lived intangible assets, other than goodwill, if the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess. Coca-Cola has the option to perform a qualitative assessment of indefinite-lived intangible assets, other than goodwill, rather than completing the impairment test. Coca-Cola must assess whether it is more likely than not that the fair value of the intangible asset is less than its carrying amount. If Coca-Cola concludes that this is the case, it must perform the testing described above. Otherwise, Coca-Cola does not need to perform any further assessment.

Coca-Cola performs impairment tests of goodwill at the reporting unit level, which is one level below the operating segments. Coca-Cola's operating segments are primarily based on geographic responsibility, which is consistent with the way management runs the business. The operating segments are subdivided into smaller geographic regions or territories that Coca-Cola sometimes refers to as "business units." These business units are also Coca-Cola's reporting units. The Bottling Investments operating segment includes all Company-owned or consolidated bottling operations, regardless of geographic location. Generally, each Company-owned or consolidated bottling operation within Coca-Cola's Bottling Investments operating segment is its own reporting unit. Goodwill is assigned to the reporting unit or units that benefit from the synergies arising from each business combination.

In order to test for goodwill impairment, Coca-Cola compares the fair value of the reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit is lower than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds the fair value. However, the loss recognized cannot exceed the carrying amount of goodwill. Coca-Cola typically uses discounted cash flow models to determine the fair value of a reporting unit. The assumptions used in these models are consistent with those Coca-Cola believes a hypothetical marketplace participant would use. Coca-Cola has the option to perform a qualitative assessment of goodwill in order to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. If Coca-Cola concludes that this is the case, it must perform the testing discussed above. Otherwise, Coca-Cola does not need to perform any further testing.

Impairment charges related to intangible assets, including goodwill, are generally recorded in the line item other operating charges or, to the extent they relate to equity method investees, in the line item equity income (loss) — net in Coca-Cola's consolidated statements of income.

Source: 10-K (filing date: 2018-02-23).


Goodwill and Intangible Assets Disclosure

Coca-Cola Co., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Trademarks hidden hidden hidden hidden hidden
Bottlers' franchise rights hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Indefinite-lived intangible assets hidden hidden hidden hidden hidden
Customer relationships hidden hidden hidden hidden hidden
Bottlers' franchise rights hidden hidden hidden hidden hidden
Trademarks hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Definite-lived intangible assets, gross carrying amount hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden
Definite-lived intangible assets, net hidden hidden hidden hidden hidden
Intangible assets hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-27).

Item Description The company
Goodwill Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions. Coca-Cola Co.'s goodwill declined from 2015 to 2016 and from 2016 to 2017.
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. Coca-Cola Co.'s intangible assets declined from 2015 to 2016 and from 2016 to 2017.

Analyst Adjustments: Removal of Goodwill

Coca-Cola Co., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden
Adjustment to Equity Attributable To Shareowners Of The Coca-Cola Company
Equity attributable to shareowners of The Coca-Cola Company (as reported) hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden
Equity attributable to shareowners of The Coca-Cola Company (adjusted) hidden hidden hidden hidden hidden
Adjustment to Net Income Attributable To Shareowners Of The Coca-Cola Company
Net income attributable to shareowners of The Coca-Cola Company (as reported) hidden hidden hidden hidden hidden
Add: Goodwill impairment hidden hidden hidden hidden hidden
Net income attributable to shareowners of The Coca-Cola Company (adjusted) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-27).


Adjusted Ratios: Removal of Goodwill (Summary)

Coca-Cola Co., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Net Profit Margin
Reported net profit margin hidden hidden hidden hidden hidden
Adjusted net profit margin hidden hidden hidden hidden hidden
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-27).

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Coca-Cola Co.'s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Coca-Cola Co.'s adjusted total asset turnover deteriorated 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.
Coca-Cola Co.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Coca-Cola Co.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Coca-Cola Co.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) hidden hidden hidden hidden hidden
Net operating revenues (USD $ in millions) hidden hidden hidden hidden hidden
Net profit margin1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Adjusted net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) hidden hidden hidden hidden hidden
Net operating revenues (USD $ in millions) hidden hidden hidden hidden hidden
Adjusted net profit margin2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-27).

2017 Calculations

1 Net profit margin = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Net operating revenues
= 100 × hidden ÷ hidden = hidden

2 Adjusted net profit margin = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ Net operating 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. Coca-Cola Co.'s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net operating revenues (USD $ in millions) hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden
Total asset turnover1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Net operating revenues (USD $ in millions) hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden
Adjusted total asset turnover2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-27).

2017 Calculations

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

2 Adjusted total asset turnover = Net operating 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. Coca-Cola Co.'s adjusted total asset turnover deteriorated from 2015 to 2016 and 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
Total assets (USD $ in millions) hidden hidden hidden hidden hidden
Equity attributable to shareowners of The Coca-Cola Company (USD $ in millions) hidden hidden hidden hidden hidden
Financial leverage1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden
Adjusted equity attributable to shareowners of The Coca-Cola Company (USD $ in millions) hidden hidden hidden hidden hidden
Adjusted financial leverage2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-27).

2017 Calculations

1 Financial leverage = Total assets ÷ Equity attributable to shareowners of The Coca-Cola Company
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted equity attributable to shareowners of The Coca-Cola Company
= 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.
Coca-Cola Co.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) hidden hidden hidden hidden hidden
Equity attributable to shareowners of The Coca-Cola Company (USD $ in millions) hidden hidden hidden hidden hidden
ROE1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Adjusted net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) hidden hidden hidden hidden hidden
Adjusted equity attributable to shareowners of The Coca-Cola Company (USD $ in millions) hidden hidden hidden hidden hidden
Adjusted ROE2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-27).

2017 Calculations

1 ROE = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Equity attributable to shareowners of The Coca-Cola Company
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ Adjusted equity attributable to shareowners of The Coca-Cola Company
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Coca-Cola Co.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly 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
Net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden
ROA1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Adjusted net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden
Adjusted ROA2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-23), 10-K (filing date: 2017-02-24), 10-K (filing date: 2016-02-25), 10-K (filing date: 2015-02-25), 10-K (filing date: 2014-02-27).

2017 Calculations

1 ROA = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ 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. Coca-Cola Co.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.