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Analysis of Inventory
Difficulty: Advanced
- Inventory Accounting Policy
- Inventory Disclosure
- Adjustment to Inventory: from LIFO to FIFO
- Adjusted 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)
Inventory Accounting Policy
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: Danaher Corp., Annual Report
Inventory Disclosure
Danaher Corp., Statement of Financial Position, Inventory
USD $ in thousands
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
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Source: Based on data from Danaher Corp. Annual Reports
| Item | Description | The company |
|---|---|---|
| Finished goods | Carrying amount as of the balance sheet date of merchandise or goods held by the company that are readily available for sale. | Danaher Corp.'s finished goods declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
| Work in process | Carrying amount as of the balance sheet date of merchandise or goods which are partially completed, are generally comprised of raw materials, labor and factory overhead costs, and which require further materials, labor and overhead to be converted into finished goods, and which generally require the use of estimates to determine percentage complete and pricing. | Danaher Corp.'s work in process declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
| Raw materials | Carrying amount as of the balance sheet date of unprocessed items to be consumed in the manufacturing or production process. Also includes purchased parts that will be used as components of a finished product. | Danaher Corp.'s raw materials declined from 2015 to 2016 but then slightly increased 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). | Danaher Corp.'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 thousands
Danaher Corp.'s inventory value on Dec 31, 2017 would be $1,840,800 (in thousands) if the FIFO inventory method was used instead of LIFO. Danaher Corp.'s inventories, valued on a LIFO basis, on Dec 31, 2017 were $1,840,800 . Danaher Corp.'s inventories would have been $– higher than reported on Dec 31, 2017 if the FIFO method had been used instead.
Adjusted Ratios: LIFO vs. FIFO (Summary)
Danaher Corp., adjusted ratios
| 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 deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level. |
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | Danaher Corp.'s adjusted net profit margin deteriorated 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. | Danaher Corp.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017. |
| 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 declined from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Danaher Corp.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Danaher Corp.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Current Ratio
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. | Danaher Corp.'s adjusted current ratio deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level. |
Adjusted Net Profit Margin
2017 Calculations
1 Net profit margin = 100 × Net earnings ÷ Sales
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Sales
= 100 × ÷ = %
| 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 deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Total Asset Turnover
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 slightly improved from 2016 to 2017. |
Adjusted Financial Leverage
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. |
Danaher Corp.'s adjusted financial leverage declined from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Equity (ROE)
2017 Calculations
1 ROE = 100 × Net earnings ÷ Total Danaher stockholders' equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted total Danaher stockholders' equity
= 100 × ÷ = %
| 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 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Assets (ROA)
2017 Calculations
1 ROA = 100 × Net earnings ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × ÷ = %
| 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 2015 to 2016 and from 2016 to 2017. |
