Analysis of Inventory
Difficulty level: Advanced
Inventory Accounting Policy
Inventories are stated at the lower of cost or market. The cost of approximately 80% of inventories is determined using the first-in, first-out ("FIFO") method. The cost of all other inventories, predominantly in the U.S. and Mexico, is determined using the last-in, first-out ("LIFO") method.
Source: Colgate-Palmolive Co., Annual Report
Inventory Disclosure
Colgate-Palmolive Co., Statement of Financial Position, Inventory
USD $ in millions
| Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | Dec 31, 2009 | ||
|---|---|---|---|---|---|---|
| Raw materials and supplies | 340 | 362 | 319 | 295 | 310 | |
| Work-in-process | 60 | 81 | 54 | 50 | 50 | |
| Finished goods | 1,025 | 922 | 954 | 877 | 849 | |
| Inventories | 1,425 | 1,365 | 1,327 | 1,222 | 1,209 |
Source: Based on data from Colgate-Palmolive Co. Annual Reports
| Item | Description | The company |
|---|---|---|
| Raw materials and supplies | Aggregated amount of unprocessed materials to be used in manufacturing or production process and supplies that will be consumed. | Colgate-Palmolive Co.'s raw materials and supplies increased from 2011 to 2012 but then slightly declined from 2012 to 2013 not reaching 2011 level. |
| Work-in-process | Carrying amount as of the balance sheet date of merchandise or goods which are partially completed, are generally comprised of raw materials, labor and factory overhead costs, and which require further materials, labor and overhead to be converted into finished goods, and which generally require the use of estimates to determine percentage complete and pricing. | Colgate-Palmolive Co.'s work-in-process increased from 2011 to 2012 but then slightly declined from 2012 to 2013 not reaching 2011 level. |
| Finished goods | Carrying amount as of the balance sheet date of merchandise or goods held by the company that are readily available for sale. | Colgate-Palmolive Co.'s finished goods declined from 2011 to 2012 but then increased from 2012 to 2013 exceeding 2011 level. |
| Inventories | Carrying amount (lower of cost or market) as of the balance sheet date of inventories less all valuation and other allowances. Excludes noncurrent inventory balances (expected to remain on hand past one year or one operating cycle, if longer). | Colgate-Palmolive Co.'s inventories increased from 2011 to 2012 and from 2012 to 2013. |
Adjustment to Inventory: from LIFO to FIFO
Adjusting LIFO Inventory to FIFO (Current) Cost
USD $ in millions
| Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | Dec 31, 2009 | ||
|---|---|---|---|---|---|---|
| Adjustment to Inventories | ||||||
| Inventories at LIFO (as reported) | 1,425 | 1,365 | 1,327 | 1,222 | 1,209 | |
| Add: Inventory LIFO reserve | 37 | 37 | 30 | 52 | 55 | |
| Inventories at FIFO (adjusted) | 1,462 | 1,402 | 1,357 | 1,274 | 1,264 | |
| Adjustment to Current Assets | ||||||
| Current assets (as reported) | 4,822 | 4,556 | 4,402 | 3,730 | 3,810 | |
| Add: Inventory LIFO reserve | 37 | 37 | 30 | 52 | 55 | |
| Current assets (adjusted) | 4,859 | 4,593 | 4,432 | 3,782 | 3,865 | |
| Adjustment to Total Assets | ||||||
| Total assets (as reported) | 13,876 | 13,394 | 12,724 | 11,172 | 11,134 | |
| Add: Inventory LIFO reserve | 37 | 37 | 30 | 52 | 55 | |
| Total assets (adjusted) | 13,913 | 13,431 | 12,754 | 11,224 | 11,189 | |
| Adjustment to Total Colgate-Palmolive Company Shareholders' Equity | ||||||
| Total Colgate-Palmolive Company shareholders' equity (as reported) | 2,305 | 2,189 | 2,375 | 2,675 | 3,116 | |
| Add: Inventory LIFO reserve | 37 | 37 | 30 | 52 | 55 | |
| Total Colgate-Palmolive Company shareholders' equity (adjusted) | 2,342 | 2,226 | 2,405 | 2,727 | 3,171 | |
| Adjustment to Net Income Attributable To Colgate-Palmolive Company | ||||||
| Net income attributable to Colgate-Palmolive Company (as reported) | 2,241 | 2,472 | 2,431 | 2,203 | 2,291 | |
| Add: Increase (decrease) in inventory LIFO reserve | – | 7 | (22) | (3) | 1 | |
| Net income attributable to Colgate-Palmolive Company (adjusted) | 2,241 | 2,479 | 2,409 | 2,200 | 2,292 | |
Colgate-Palmolive Co.'s inventory value on Dec 31, 2013 would be $1,462 (in millions) if the FIFO inventory method was used instead of LIFO. Colgate-Palmolive Co.'s inventories, valued on a LIFO basis, on Dec 31, 2013 were $1,425 . Colgate-Palmolive Co.'s inventories would have been $37 higher than reported on Dec 31, 2013 if the FIFO method had been used instead.
Adjusted Ratios: LIFO vs. FIFO (Summary)
Colgate-Palmolive Co., adjusted ratios
| Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | Dec 31, 2009 | ||
|---|---|---|---|---|---|---|
| Current Ratio | ||||||
| Reported current ratio (LIFO) | 1.08 | 1.22 | 1.18 | 1.00 | 1.06 | |
| Adjusted current ratio (FIFO) | 1.09 | 1.23 | 1.19 | 1.01 | 1.07 | |
| Net Profit Margin | ||||||
| Reported net profit margin (LIFO) | 12.86% | 14.47% | 14.53% | 14.15% | 14.95% | |
| Adjusted net profit margin (FIFO) | 12.86% | 14.51% | 14.40% | 14.14% | 14.95% | |
| Total Asset Turnover | ||||||
| Reported total asset turnover (LIFO) | 1.26 | 1.28 | 1.32 | 1.39 | 1.38 | |
| Adjusted total asset turnover (FIFO) | 1.25 | 1.27 | 1.31 | 1.39 | 1.37 | |
| Financial Leverage | ||||||
| Reported financial leverage (LIFO) | 6.02 | 6.12 | 5.36 | 4.18 | 3.57 | |
| Adjusted financial leverage (FIFO) | 5.94 | 6.03 | 5.30 | 4.12 | 3.53 | |
| Return on Equity (ROE) | ||||||
| Reported ROE (LIFO) | 97.22% | 112.93% | 102.36% | 82.36% | 73.52% | |
| Adjusted ROE (FIFO) | 95.69% | 111.37% | 100.17% | 80.67% | 72.28% | |
| Return on Assets (ROA) | ||||||
| Reported ROA (LIFO) | 16.15% | 18.46% | 19.11% | 19.72% | 20.58% | |
| Adjusted ROA (FIFO) | 16.11% | 18.46% | 18.89% | 19.60% | 20.48% | |
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by current liabilities. | Colgate-Palmolive Co.'s adjusted current ratio improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013. |
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | Colgate-Palmolive Co.'s adjusted net profit margin improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Colgate-Palmolive Co.'s adjusted total asset turnover deteriorated from 2011 to 2012 and from 2012 to 2013. |
| 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. |
Colgate-Palmolive Co.'s adjusted financial leverage increased from 2011 to 2012 but then slightly declined from 2012 to 2013. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Colgate-Palmolive Co.'s adjusted ROE improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Colgate-Palmolive Co.'s adjusted ROA deteriorated from 2011 to 2012 and from 2012 to 2013. |
Adjusted Current Ratio
| Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | Dec 31, 2009 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| Current assets (USD $ in millions) | 4,822 | 4,556 | 4,402 | 3,730 | 3,810 | |
| Current liabilities (USD $ in millions) | 4,470 | 3,736 | 3,716 | 3,728 | 3,599 | |
| Current ratio1 | 1.08 | 1.22 | 1.18 | 1.00 | 1.06 | |
| Adjusted: from LIFO to FIFO | ||||||
| Adjusted current assets (USD $ in millions) | 4,859 | 4,593 | 4,432 | 3,782 | 3,865 | |
| Current liabilities (USD $ in millions) | 4,470 | 3,736 | 3,716 | 3,728 | 3,599 | |
| Adjusted current ratio2 | 1.09 | 1.23 | 1.19 | 1.01 | 1.07 | |
2013 Calculations
1 Current ratio = Current assets ÷ Current liabilities
= 4,822 ÷ 4,470 = 1.08
2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 4,859 ÷ 4,470 = 1.09
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by current liabilities. | Colgate-Palmolive Co.'s adjusted current ratio improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013. |
Adjusted Net Profit Margin
| Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | Dec 31, 2009 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| Net income attributable to Colgate-Palmolive Company (USD $ in millions) | 2,241 | 2,472 | 2,431 | 2,203 | 2,291 | |
| Net sales (USD $ in millions) | 17,420 | 17,085 | 16,734 | 15,564 | 15,327 | |
| Net profit margin1 | 12.86% | 14.47% | 14.53% | 14.15% | 14.95% | |
| Adjusted: from LIFO to FIFO | ||||||
| Adjusted net income attributable to Colgate-Palmolive Company (USD $ in millions) | 2,241 | 2,479 | 2,409 | 2,200 | 2,292 | |
| Net sales (USD $ in millions) | 17,420 | 17,085 | 16,734 | 15,564 | 15,327 | |
| Adjusted net profit margin2 | 12.86% | 14.51% | 14.40% | 14.14% | 14.95% | |
2013 Calculations
1 Net profit margin = 100 × Net income attributable to Colgate-Palmolive Company ÷ Net sales
= 100 × 2,241 ÷ 17,420 = 12.86%
2 Adjusted net profit margin = 100 × Adjusted net income attributable to Colgate-Palmolive Company ÷ Net sales
= 100 × 2,241 ÷ 17,420 = 12.86%
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | Colgate-Palmolive Co.'s adjusted net profit margin improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013. |
Adjusted Total Asset Turnover
| Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | Dec 31, 2009 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| Net sales (USD $ in millions) | 17,420 | 17,085 | 16,734 | 15,564 | 15,327 | |
| Total assets (USD $ in millions) | 13,876 | 13,394 | 12,724 | 11,172 | 11,134 | |
| Total asset turnover1 | 1.26 | 1.28 | 1.32 | 1.39 | 1.38 | |
| Adjusted: from LIFO to FIFO | ||||||
| Net sales (USD $ in millions) | 17,420 | 17,085 | 16,734 | 15,564 | 15,327 | |
| Adjusted total assets (USD $ in millions) | 13,913 | 13,431 | 12,754 | 11,224 | 11,189 | |
| Adjusted total asset turnover2 | 1.25 | 1.27 | 1.31 | 1.39 | 1.37 | |
2013 Calculations
1 Total asset turnover = Net sales ÷ Total assets
= 17,420 ÷ 13,876 = 1.26
2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 17,420 ÷ 13,913 = 1.25
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Colgate-Palmolive Co.'s adjusted total asset turnover deteriorated from 2011 to 2012 and from 2012 to 2013. |
Adjusted Financial Leverage
| Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | Dec 31, 2009 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| Total assets (USD $ in millions) | 13,876 | 13,394 | 12,724 | 11,172 | 11,134 | |
| Total Colgate-Palmolive Company shareholders' equity (USD $ in millions) | 2,305 | 2,189 | 2,375 | 2,675 | 3,116 | |
| Financial leverage1 | 6.02 | 6.12 | 5.36 | 4.18 | 3.57 | |
| Adjusted: from LIFO to FIFO | ||||||
| Adjusted total assets (USD $ in millions) | 13,913 | 13,431 | 12,754 | 11,224 | 11,189 | |
| Adjusted total Colgate-Palmolive Company shareholders' equity (USD $ in millions) | 2,342 | 2,226 | 2,405 | 2,727 | 3,171 | |
| Adjusted financial leverage2 | 5.94 | 6.03 | 5.30 | 4.12 | 3.53 | |
2013 Calculations
1 Financial leverage = Total assets ÷ Total Colgate-Palmolive Company shareholders' equity
= 13,876 ÷ 2,305 = 6.02
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Colgate-Palmolive Company shareholders' equity
= 13,913 ÷ 2,342 = 5.94
| 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. |
Colgate-Palmolive Co.'s adjusted financial leverage increased from 2011 to 2012 but then slightly declined from 2012 to 2013. |
Adjusted Return On Equity (ROE)
| Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | Dec 31, 2009 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| Net income attributable to Colgate-Palmolive Company (USD $ in millions) | 2,241 | 2,472 | 2,431 | 2,203 | 2,291 | |
| Total Colgate-Palmolive Company shareholders' equity (USD $ in millions) | 2,305 | 2,189 | 2,375 | 2,675 | 3,116 | |
| ROE1 | 97.22% | 112.93% | 102.36% | 82.36% | 73.52% | |
| Adjusted: from LIFO to FIFO | ||||||
| Adjusted net income attributable to Colgate-Palmolive Company (USD $ in millions) | 2,241 | 2,479 | 2,409 | 2,200 | 2,292 | |
| Adjusted total Colgate-Palmolive Company shareholders' equity (USD $ in millions) | 2,342 | 2,226 | 2,405 | 2,727 | 3,171 | |
| Adjusted ROE2 | 95.69% | 111.37% | 100.17% | 80.67% | 72.28% | |
2013 Calculations
1 ROE = 100 × Net income attributable to Colgate-Palmolive Company ÷ Total Colgate-Palmolive Company shareholders' equity
= 100 × 2,241 ÷ 2,305 = 97.22%
2 Adjusted ROE = 100 × Adjusted net income attributable to Colgate-Palmolive Company ÷ Adjusted total Colgate-Palmolive Company shareholders' equity
= 100 × 2,241 ÷ 2,342 = 95.69%
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Colgate-Palmolive Co.'s adjusted ROE improved from 2011 to 2012 but then deteriorated significantly from 2012 to 2013. |
Adjusted Return On Assets (ROA)
| Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | Dec 31, 2009 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| Net income attributable to Colgate-Palmolive Company (USD $ in millions) | 2,241 | 2,472 | 2,431 | 2,203 | 2,291 | |
| Total assets (USD $ in millions) | 13,876 | 13,394 | 12,724 | 11,172 | 11,134 | |
| ROA1 | 16.15% | 18.46% | 19.11% | 19.72% | 20.58% | |
| Adjusted: from LIFO to FIFO | ||||||
| Adjusted net income attributable to Colgate-Palmolive Company (USD $ in millions) | 2,241 | 2,479 | 2,409 | 2,200 | 2,292 | |
| Adjusted total assets (USD $ in millions) | 13,913 | 13,431 | 12,754 | 11,224 | 11,189 | |
| Adjusted ROA2 | 16.11% | 18.46% | 18.89% | 19.60% | 20.48% | |
2013 Calculations
1 ROA = 100 × Net income attributable to Colgate-Palmolive Company ÷ Total assets
= 100 × 2,241 ÷ 13,876 = 16.15%
2 Adjusted ROA = 100 × Adjusted net income attributable to Colgate-Palmolive Company ÷ Adjusted total assets
= 100 × 2,241 ÷ 13,913 = 16.11%
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Colgate-Palmolive Co.'s adjusted ROA deteriorated from 2011 to 2012 and from 2012 to 2013. |