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Inventory Accounting Policy

ConocoPhillips has several valuation methods for the various types of inventories and consistently uses the following methods for each type of inventory. ConocoPhillips' commodity-related inventories are recorded at cost primarily using the last-in, first-out (LIFO) basis. ConocoPhillips measures these inventories at the lower-of-cost-or-market in the aggregate. Any necessary lower-of-cost-or-market write-downs at year end are recorded as permanent adjustments to the LIFO cost basis. LIFO is used to better match current inventory costs with current revenues. Costs include both direct and indirect expenditures incurred in bringing an item or product to its existing condition and location, but not unusual/nonrecurring costs or research and development costs. Materials, supplies and other miscellaneous inventories, such as tubular goods and well equipment, are valued using various methods, including the weighted-average-cost method, and the first-in, first-out (FIFO) method, consistent with industry practice.

Source: ConocoPhillips, Annual Report

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Inventory Disclosure

ConocoPhillips, Statement of Financial Position, Inventory

USD $ in millions

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Crude oil and natural gas
Materials and supplies
Inventories

Source: Based on data from ConocoPhillips Annual Reports

Item Description The company
Crude oil and natural gas The aggregate carrying amount as of the balance sheet date of unrefined petroleum and the liquid hydrocarbon components recovered from natural gas. ConocoPhillips's crude oil and natural gas increased from 2015 to 2016 and from 2016 to 2017.
Materials and supplies Aggregated amount of unprocessed materials to be used in manufacturing or production process and supplies that will be consumed. ConocoPhillips's materials and supplies declined from 2015 to 2016 and from 2016 to 2017.
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). ConocoPhillips's inventories declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

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Adjustment to Inventory: from LIFO to FIFO

Adjusting LIFO Inventory to FIFO (Current) Cost

USD $ in millions

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Inventories
Inventories at LIFO (as reported)
Add: Inventory LIFO reserve
Inventories at FIFO (adjusted)
Adjustment to Current Assets
Current assets (as reported)
Add: Inventory LIFO reserve
Current assets (adjusted)
Adjustment to Total Assets
Total assets (as reported)
Add: Inventory LIFO reserve
Total assets (adjusted)
Adjustment to Common Stockholders’ Equity
Common stockholders’ equity (as reported)
Add: Inventory LIFO reserve
Common stockholders’ equity (adjusted)
Adjustment to Net Income (loss) Attributable To ConocoPhillips
Net income (loss) attributable to ConocoPhillips (as reported)
Add: Increase (decrease) in inventory LIFO reserve
Net income (loss) attributable to ConocoPhillips (adjusted)

ConocoPhillips's inventory value on Dec 31, 2017 would be $1,184  (in millions) if the FIFO inventory method was used instead of LIFO. ConocoPhillips's inventories, valued on a LIFO basis, on Dec 31, 2017 were $1,060 . ConocoPhillips's inventories would have been $124  higher than reported on Dec 31, 2017 if the FIFO method had been used instead.

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Adjusted Ratios: LIFO vs. FIFO (Summary)

ConocoPhillips, adjusted ratios

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Current Ratio
Reported current ratio (LIFO)
Adjusted current ratio (FIFO)
Net Profit Margin
Reported net profit margin (LIFO) % % % % %
Adjusted net profit margin (FIFO) % % % % %
Total Asset Turnover
Reported total asset turnover (LIFO)
Adjusted total asset turnover (FIFO)
Financial Leverage
Reported financial leverage (LIFO)
Adjusted financial leverage (FIFO)
Return on Equity (ROE)
Reported ROE (LIFO) % % % % %
Adjusted ROE (FIFO) % % % % %
Return on Assets (ROA)
Reported ROA (LIFO) % % % % %
Adjusted ROA (FIFO) % % % % %
Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by current liabilities. ConocoPhillips's adjusted current ratio improved from 2015 to 2016 and from 2016 to 2017.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. ConocoPhillips's adjusted net profit margin improved 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. ConocoPhillips's adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
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.
ConocoPhillips's adjusted financial leverage increased from 2015 to 2016 but then declined significantly from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. ConocoPhillips's adjusted ROE improved from 2015 to 2016 and from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. ConocoPhillips's adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Current Ratio

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Current assets (USD $ in millions)
Current liabilities (USD $ in millions)
Current ratio1
Adjusted: from LIFO to FIFO
Adjusted current assets (USD $ in millions)
Current liabilities (USD $ in millions)
Adjusted current ratio2

2017 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= ÷ =

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= ÷ =

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by current liabilities. ConocoPhillips's adjusted current ratio improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Net Profit Margin

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) attributable to ConocoPhillips (USD $ in millions)
Sales and other operating revenues (USD $ in millions)
Net profit margin1 % % % % %
Adjusted: from LIFO to FIFO
Adjusted net income (loss) attributable to ConocoPhillips (USD $ in millions)
Sales and other operating revenues (USD $ in millions)
Adjusted net profit margin2 % % % % %

2017 Calculations

1 Net profit margin = 100 × Net income (loss) attributable to ConocoPhillips ÷ Sales and other operating revenues
= 100 × ÷ = %

2 Adjusted net profit margin = 100 × Adjusted net income (loss) attributable to ConocoPhillips ÷ Sales and other operating revenues
= 100 × ÷ = %

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. ConocoPhillips's adjusted net profit margin improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Total Asset Turnover

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Sales and other operating revenues (USD $ in millions)
Total assets (USD $ in millions)
Total asset turnover1
Adjusted: from LIFO to FIFO
Sales and other operating revenues (USD $ in millions)
Adjusted total assets (USD $ in millions)
Adjusted total asset turnover2

2017 Calculations

1 Total asset turnover = Sales and other operating revenues ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Sales and other operating revenues ÷ Adjusted total assets
= ÷ =

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. ConocoPhillips's adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

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Adjusted Financial Leverage

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Total assets (USD $ in millions)
Common stockholders’ equity (USD $ in millions)
Financial leverage1
Adjusted: from LIFO to FIFO
Adjusted total assets (USD $ in millions)
Adjusted common stockholders’ equity (USD $ in millions)
Adjusted financial leverage2

2017 Calculations

1 Financial leverage = Total assets ÷ Common stockholders’ equity
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted common stockholders’ 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.
ConocoPhillips's adjusted financial leverage increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

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Adjusted Return on Equity (ROE)

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) attributable to ConocoPhillips (USD $ in millions)
Common stockholders’ equity (USD $ in millions)
ROE1 % % % % %
Adjusted: from LIFO to FIFO
Adjusted net income (loss) attributable to ConocoPhillips (USD $ in millions)
Adjusted common stockholders’ equity (USD $ in millions)
Adjusted ROE2 % % % % %

2017 Calculations

1 ROE = 100 × Net income (loss) attributable to ConocoPhillips ÷ Common stockholders’ equity
= 100 × ÷ = %

2 Adjusted ROE = 100 × Adjusted net income (loss) attributable to ConocoPhillips ÷ Adjusted common stockholders’ equity
= 100 × ÷ = %

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. ConocoPhillips's adjusted ROE improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Assets (ROA)

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) attributable to ConocoPhillips (USD $ in millions)
Total assets (USD $ in millions)
ROA1 % % % % %
Adjusted: from LIFO to FIFO
Adjusted net income (loss) attributable to ConocoPhillips (USD $ in millions)
Adjusted total assets (USD $ in millions)
Adjusted ROA2 % % % % %

2017 Calculations

1 ROA = 100 × Net income (loss) attributable to ConocoPhillips ÷ Total assets
= 100 × ÷ = %

2 Adjusted ROA = 100 × Adjusted net income (loss) attributable to ConocoPhillips ÷ Adjusted total assets
= 100 × ÷ = %

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. ConocoPhillips's adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.

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