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Danaher Corp. (DHR)

Analysis of Inventory

Advanced level

Accounting Policy on Inventory
Inventory Disclosure
Adjustment to Inventory: Conversion from LIFO to FIFO
Adjusted Financial Ratios: LIFO vs. FIFO (Summary)
Adjusted Current Ratio
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Accounting Policy on Inventory

Inventories include the costs of material, labor and overhead. Domestic inventories are stated at the lower of cost or market primarily using the first-in, first-out (“FIFO”) method with certain businesses applying the last-in, first-out method (“LIFO”) to value inventory. Inventories held outside the United States are stated at the lower of cost or market primarily using the FIFO method.

Source: 10-K (filing date: 2019-02-21).

Inventory Disclosure

Danaher Corp., balance sheet: inventory

US$ in thousands

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Finished goods
	Work in process
	Raw materials
	Inventories

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

Item	Description	The company
Inventories	Amount after valuation and LIFO reserves of inventory expected to be sold, or consumed within one year or operating cycle, if longer.	Danaher Corp.’s inventories increased from 2016 to 2017 and from 2017 to 2018.

Adjustment to Inventory: Conversion from LIFO to FIFO

Adjusting LIFO Inventory to FIFO (Current) Cost

US$ in thousands

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	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 Total Danaher Stockholders’ Equity
	Total Danaher stockholders’ equity (as reported)
	Add: Inventory LIFO reserve
	Total Danaher stockholders’ equity (adjusted)
	Adjustment to Net Earnings
	Net earnings (as reported)
	Add: Increase (decrease) in inventory LIFO reserve
	Net earnings (adjusted)

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

Danaher Corp.’s inventory value on Dec 31, 2018 would be $1,910,100 (in thousands) if the FIFO inventory method was used instead of LIFO. Danaher Corp.’s inventories, valued on a LIFO basis, on Dec 31, 2018 were $1,910,100 . Danaher Corp.’s inventories would have been $— higher than reported on Dec 31, 2018 if the FIFO method had been used instead.

Danaher Corp., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: LIFO vs. FIFO (Summary)

Danaher Corp., adjusted financial ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	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)

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

Financial ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by current liabilities.	Danaher Corp.’s adjusted current ratio improved from 2016 to 2017 and from 2017 to 2018.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Danaher Corp.’s adjusted net profit margin ratio deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Danaher Corp.’s adjusted total asset turnover ratio improved from 2016 to 2017 and from 2017 to 2018.
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.	Danaher Corp.’s adjusted financial leverage ratio decreased from 2016 to 2017 and from 2017 to 2018.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Danaher Corp.’s adjusted ROE deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Danaher Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Danaher Corp., Financial Ratios: Reported vs. Adjusted

Adjusted Current Ratio

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Current assets
	Current liabilities
	Liquidity Ratio
	Current ratio¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in thousands)
	Adjusted current assets
	Current liabilities
	Liquidity Ratio
	Adjusted current ratio²

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

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

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

Liquidity ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by current liabilities.	Danaher Corp.’s adjusted current ratio improved from 2016 to 2017 and from 2017 to 2018.

Adjusted Net Profit Margin

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Net earnings
	Sales
	Profitability Ratio
	Net profit margin¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in thousands)
	Adjusted net earnings
	Sales
	Profitability Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

¹ Net profit margin = 100 × Net earnings ÷ Sales
= 100 × hidden ÷ hidden = hidden

² Adjusted net profit margin = 100 × Adjusted net earnings ÷ Sales
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Danaher Corp.’s adjusted net profit margin ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Total Asset Turnover

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Sales
	Total assets
	Activity Ratio
	Total asset turnover¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in thousands)
	Sales
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

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

² Adjusted total asset turnover = Sales ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Activity 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 ratio improved from 2016 to 2017 and from 2017 to 2018.

Adjusted Financial Leverage

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Total assets
	Total Danaher stockholders’ equity
	Solvency Ratio
	Financial leverage¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in thousands)
	Adjusted total assets
	Adjusted total Danaher stockholders’ equity
	Solvency Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 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

Solvency 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.	Danaher Corp.’s adjusted financial leverage ratio decreased from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Net earnings
	Total Danaher stockholders’ equity
	Profitability Ratio
	ROE¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in thousands)
	Adjusted net earnings
	Adjusted total Danaher stockholders’ equity
	Profitability Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

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

² Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted total Danaher stockholders’ equity
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Danaher Corp.’s adjusted ROE deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Assets (ROA)

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Net earnings
	Total assets
	Profitability Ratio
	ROA¹
	Adjusted: After Conversion from LIFO to FIFO
	Selected Financial Data (US$ in thousands)
	Adjusted net earnings
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-22), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-25).

2018 Calculations

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

² Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Profitability ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Danaher Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

	Danaher Corp.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality