.Analysis of Inventory
Difficulty: Advanced
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
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. |
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.
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. |
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. |
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. |
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. |
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. |
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. |
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. |
