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Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Goodwill and other intangible assets result from Danaher's acquisition of existing businesses. In accordance with accounting standards related to business combinations, goodwill is not amortized, however, certain definite-lived identifiable intangible assets, primarily customer relationships and acquired technology, are amortized over their estimated useful lives. Intangible assets with indefinite lives are not amortized. In-process research and development ("IPR&D") is initially capitalized at fair value and when the IPR&D project is complete, the asset is considered a finite-lived intangible asset and amortized over its estimated useful life. If an IPR&D project is abandoned, an impairment loss equal to the value of the intangible asset is recorded in the period of abandonment. Danaher reviews identified intangible assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Danaher also tests intangible assets with indefinite lives at least annually for impairment.

Source: Danaher Corp., Annual Report


Goodwill and Intangible Assets Disclosure

Danaher Corp., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in thousands

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Patents and technology hidden hidden hidden hidden hidden
Customer relationships and other intangibles hidden hidden hidden hidden hidden
Finite-lived intangibles, gross carrying amount hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden
Finite-lived intangibles, net hidden hidden hidden hidden hidden
Trademarks and trade names hidden hidden hidden hidden hidden
Indefinite-lived intangibles hidden hidden hidden hidden hidden
Intangibles hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden
Goodwill and other intangible assets hidden hidden hidden hidden hidden

Source: Based on data from Danaher Corp. Annual Reports

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

Analyst Adjustments: Removal of Goodwill

Danaher Corp., adjustments to financial data

USD $ in thousands

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 Total Danaher Stockholders' Equity
Total Danaher stockholders' equity (as reported) hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden
Total Danaher stockholders' equity (adjusted) hidden hidden hidden hidden hidden

Adjusted Ratios: Removal of Goodwill (Summary)

Danaher Corp., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
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%
Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Danaher Corp.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 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.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Danaher Corp.'s adjusted ROA 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
Sales (USD $ in thousands) hidden hidden hidden hidden hidden
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden
Total asset turnover1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Sales (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total asset turnover2 hidden hidden hidden hidden hidden

2017 Calculations

1 Total asset turnover = Sales ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Sales ÷ 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. Danaher Corp.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level.

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 thousands) hidden hidden hidden hidden hidden
Total Danaher stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
Financial leverage1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total Danaher stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted financial leverage2 hidden hidden hidden hidden hidden

2017 Calculations

1 Financial leverage = Total assets ÷ Total Danaher stockholders' equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Danaher stockholders' 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)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net earnings (USD $ in thousands) hidden hidden hidden hidden hidden
Total Danaher stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
ROE1 hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Net earnings (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total Danaher stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted ROE2 hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 ROE = 100 × Net earnings ÷ Total Danaher stockholders' equity
= 100 × hidden ÷ hidden = hidden%

2 Adjusted ROE = 100 × Net earnings ÷ Adjusted total Danaher stockholders' equity
= 100 × hidden ÷ hidden = hidden%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity.

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 earnings (USD $ in thousands) hidden hidden hidden hidden hidden
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden
ROA1 hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Net earnings (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden
Adjusted ROA2 hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 ROA = 100 × Net earnings ÷ Total assets
= 100 × hidden ÷ hidden = hidden%

2 Adjusted ROA = 100 × Net earnings ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden%

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