.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
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Patents and technology | |||||
| | Customer relationships and other intangibles | |||||
| | Finite-lived intangibles, gross carrying amount | |||||
| | Accumulated amortization | |||||
| | Finite-lived intangibles, net | |||||
| | Trademarks and trade names | |||||
| | Indefinite-lived intangibles | |||||
| | Intangibles | |||||
| | Goodwill | |||||
| | Goodwill and other intangible assets |
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
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Adjustment to Total Assets | ||||||
| | Total assets (as reported) | |||||
| | Less: Goodwill | |||||
| | Total assets (adjusted) | |||||
| Adjustment to Total Danaher Stockholders' Equity | ||||||
| | Total Danaher stockholders' equity (as reported) | |||||
| | Less: Goodwill | |||||
| | Total Danaher stockholders' equity (adjusted) | |||||
Adjusted Ratios: Removal of Goodwill (Summary)
Danaher Corp., adjusted ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Total Asset Turnover | ||||||
| | Reported total asset turnover | |||||
| | Adjusted total asset turnover | |||||
| Financial Leverage | ||||||
| | Reported financial leverage | |||||
| | Adjusted financial leverage | |||||
| Return on Equity (ROE) | ||||||
| | Reported ROE | % | % | % | % | % |
| | Adjusted ROE | % | % | % | % | % |
| Return on Assets (ROA) | ||||||
| | Reported ROA | % | % | % | % | % |
| | Adjusted ROA | % | % | % | % | % |
| 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
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Sales (USD $ in thousands) | |||||
| | Total assets (USD $ in thousands) | |||||
| | Total asset turnover1 | |||||
| Adjusted for Goodwill | ||||||
| | Sales (USD $ in thousands) | |||||
| | Adjusted total assets (USD $ in thousands) | |||||
| | Adjusted total asset turnover2 | |||||
2017 Calculations
1 Total asset turnover = Sales ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Sales ÷ Adjusted total assets
= ÷ =
| 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
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Total assets (USD $ in thousands) | |||||
| | Total Danaher stockholders' equity (USD $ in thousands) | |||||
| | Financial leverage1 | |||||
| Adjusted for Goodwill | ||||||
| | Adjusted total assets (USD $ in thousands) | |||||
| | Adjusted total Danaher stockholders' equity (USD $ in thousands) | |||||
| | Adjusted financial leverage2 | |||||
2017 Calculations
1 Financial leverage = Total assets ÷ Total Danaher stockholders' equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Danaher 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. |
Adjusted Return on Equity (ROE)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net earnings (USD $ in thousands) | |||||
| | Total Danaher stockholders' equity (USD $ in thousands) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted for Goodwill | ||||||
| | Net earnings (USD $ in thousands) | |||||
| | Adjusted total Danaher stockholders' equity (USD $ in thousands) | |||||
| | Adjusted ROE2 | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net earnings ÷ Total Danaher stockholders' equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Net earnings ÷ Adjusted total Danaher stockholders' equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders' equity. |
Adjusted Return on Assets (ROA)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net earnings (USD $ in thousands) | |||||
| | Total assets (USD $ in thousands) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted for Goodwill | ||||||
| | Net earnings (USD $ in thousands) | |||||
| | Adjusted total assets (USD $ in thousands) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net earnings ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Net earnings ÷ Adjusted total assets
= 100 × ÷ = %
| 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. |
