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Danaher Corp. (DHR)

Analysis of Investments

Difficulty: Advanced

Investment Accounting Policy

Investments over which Danaher has a significant influence but not a controlling interest, are accounted for using the equity method of accounting which requires Danaher to record its initial investment at cost and adjust the balance each period for Danaher’s share of the investee’s income or loss and dividends paid. Danaher also invests in innovative start-up companies where Danaher has neither control of nor significant influence over the investee. Beginning in 2018 with the adoption of Accounting Standards Update (“ASU”) No. 2016-01, Danaher measures these non-marketable equity securities at fair value and recognizes changes in fair value in net earnings. For securities without readily available fair values, Danaher has elected the measurement alternative to record these investments at cost and to adjust for impairments and observable price changes with a same or similar security from the same issuer within net earnings (the “Fair Value Alternative”). Additionally, Danaher is a limited partner in a partnership that invests in start-up companies. While the partnership records these investments at fair value, Danaher’s investment in the partnership is accounted for under the equity method of accounting. Danaher made minority investments in non-marketable equity securities and equity method investments totaling $149 million in 2018. No significant realized or unrealized gains or losses were recorded in 2018 with respect to these investments.

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

Adjustment to Net Income (Loss): Mark to Market Available-for-sale Securities

Danaher Corp., adjustment to Net Earnings

US$ in thousands

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12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net earnings (as reported) 2,650,900  2,492,100  2,553,700  3,357,400  2,598,400 
Add: Unrealized gain (loss) on available-for-sale securities (800) (19,600) (114,800) 17,600  (52,100)
Net earnings (adjusted) 2,650,100  2,472,500  2,438,900  3,375,000  2,546,300 

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).

Adjusted Ratios: Mark to Market Available-for-sale Securities (Summary)

Danaher Corp., adjusted ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Net Profit Margin
Reported net profit margin 13.33% 13.60% 15.13% 16.33% 13.05%
Adjusted net profit margin 13.32% 13.49% 14.45% 16.41% 12.79%
Return on Equity (ROE)
Reported ROE 9.40% 9.45% 11.10% 14.17% 11.11%
Adjusted ROE 9.39% 9.38% 10.60% 14.25% 10.89%
Return on Assets (ROA)
Reported ROA 5.54% 5.34% 5.64% 6.96% 7.02%
Adjusted ROA 5.54% 5.30% 5.38% 7.00% 6.88%

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).

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 2016 to 2017 and from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by shareholders’ equity. Danaher Corp.’s adjusted ROE deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. Danaher Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Danaher Corp., Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

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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 2,650,900  2,492,100  2,553,700  3,357,400  2,598,400 
Sales 19,893,000  18,329,700  16,882,400  20,563,100  19,913,800 
Ratio
Net profit margin1 13.33% 13.60% 15.13% 16.33% 13.05%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in thousands)
Adjusted net earnings 2,650,100  2,472,500  2,438,900  3,375,000  2,546,300 
Sales 19,893,000  18,329,700  16,882,400  20,563,100  19,913,800 
Ratio
Adjusted net profit margin2 13.32% 13.49% 14.45% 16.41% 12.79%

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 × 2,650,900 ÷ 19,893,000 = 13.33%

2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Sales
= 100 × 2,650,100 ÷ 19,893,000 = 13.32%

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 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

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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 2,650,900  2,492,100  2,553,700  3,357,400  2,598,400 
Total Danaher stockholders’ equity 28,214,400  26,358,200  23,002,800  23,690,300  23,378,100 
Ratio
ROE1 9.40% 9.45% 11.10% 14.17% 11.11%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in thousands)
Adjusted net earnings 2,650,100  2,472,500  2,438,900  3,375,000  2,546,300 
Total Danaher stockholders’ equity 28,214,400  26,358,200  23,002,800  23,690,300  23,378,100 
Ratio
Adjusted ROE2 9.39% 9.38% 10.60% 14.25% 10.89%

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 × 2,650,900 ÷ 28,214,400 = 9.40%

2 Adjusted ROE = 100 × Adjusted net earnings ÷ Total Danaher stockholders’ equity
= 100 × 2,650,100 ÷ 28,214,400 = 9.39%

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

Adjusted Return on Assets (ROA)

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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 2,650,900  2,492,100  2,553,700  3,357,400  2,598,400 
Total assets 47,832,500  46,648,600  45,295,300  48,222,200  36,991,700 
Ratio
ROA1 5.54% 5.34% 5.64% 6.96% 7.02%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in thousands)
Adjusted net earnings 2,650,100  2,472,500  2,438,900  3,375,000  2,546,300 
Total assets 47,832,500  46,648,600  45,295,300  48,222,200  36,991,700 
Ratio
Adjusted ROA2 5.54% 5.30% 5.38% 7.00% 6.88%

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 × 2,650,900 ÷ 47,832,500 = 5.54%

2 Adjusted ROA = 100 × Adjusted net earnings ÷ Total assets
= 100 × 2,650,100 ÷ 47,832,500 = 5.54%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by total assets. Danaher Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.