Ecolab Inc. (NYSE:ECL)

The analysis of the financial data reveals several notable trends in the intangible assets over the five-year period ending December 31, 2021.

Goodwill

Goodwill showed fluctuation, starting at approximately 7.17 billion USD in 2017, decreasing slightly in 2018, peaking in 2019, then falling sharply in 2020 before rising significantly to over 8.06 billion USD by the end of 2021. This indicates notable acquisitions or adjustments impacting goodwill values, especially the considerable rise in 2021.

Trade Names and Intangible Assets Not Subject to Amortization

Both trade names and intangible assets not subject to amortization remained constant at 1.23 billion USD each throughout the entire period, suggesting no additions or disposals in these categories.

Customer Relationships

Customer relationships experienced an initial increase from 3.62 billion USD in 2017 to approximately 3.74 billion USD in 2019. However, there was a significant decline to about 2.53 billion USD in 2020, followed by a partial recovery to 3.44 billion USD in 2021. This pattern may reflect changes in customer bases or valuation adjustments.

Trademarks

Trademarks showed a gradual increase from 380.6 million USD in 2017 to nearly 410 million USD in 2019, dipped to 348 million USD in 2020, and then surged to 561.1 million USD in 2021. The sharp increase in 2021 indicates either acquisitions or revaluation of trademarks.

Patents

Patents displayed steady growth over the period, from 462.7 million USD in 2017 to 496.3 million USD in 2021, demonstrating ongoing investment or capitalization of patent-related intangible assets.

Other Technology

Other technology assets fluctuated, increasing from 232.6 million USD in 2017 to 297.2 million USD in 2019, then dropping to 240.1 million USD in 2020 before more than doubling to 527.2 million USD in 2021. The substantial growth in 2021 suggests new investments or capitalizations in technology-related intangible assets.

Intangible Assets Subject to Amortization

Intangible assets subject to amortization grew slightly from 4.70 billion USD in 2017 to 4.93 billion USD in 2019, fell significantly to 3.61 billion USD in 2020, and rebounded to 5.03 billion USD in 2021. The considerable drop in 2020 followed by recovery in 2021 points to asset disposals or impairment and subsequent acquisitions or revaluations.

Accumulated Amortization

Accumulated amortization expanded steadily from -1.91 billion USD in 2017 to -2.48 billion USD in 2019, but then decreased to -1.86 billion USD in 2020 and slightly increased to -2.04 billion USD in 2021. The reduction in 2020 suggests amortization reversal or asset disposals, with a partial increase resuming in 2021.

Net Intangible Assets Subject to Amortization

The net value of intangible assets subject to amortization decreased from 2.79 billion USD in 2017 to 2.44 billion USD in 2019, dropped further to 1.75 billion USD in 2020, and then rose to nearly 3.00 billion USD in 2021. This reflects the combined effect of changes in gross intangible assets and accumulated amortization as noted.

Other Intangible Assets, Net

Other intangible assets net value trended downward from approximately 4.02 billion USD in 2017 to 3.67 billion USD in 2019, further declining to 2.98 billion USD in 2020, before recovering to 4.22 billion USD in 2021. This recovery aligns with trends observed in trademarks and other technology intangibles.

Goodwill and Other Intangible Assets, Net

The aggregate net goodwill and other intangible assets reflected a declining trend from 11.18 billion USD in 2017 to 10.92 billion USD in 2019, followed by a sharp drop to 8.98 billion USD in 2020, and then a strong increase to 12.29 billion USD in 2021. This indicates overall asset fluctuations primarily driven by goodwill variations and other intangible asset write-downs and subsequent acquisitions or revaluations in 2021.

Overall, the data indicates periods of asset reductions and recoveries, with 2020 reflecting the most significant decline in intangible assets, likely due to impairment, disposals, or economic impacts. The rebound in 2021 suggests a phase of acquisitions, investments, or revaluation contributing to substantial increases in goodwill, trademarks, other technology assets, and net intangible assets.

The data reveals a contrasting trend between reported and goodwill adjusted financial measures over the five-year period ending in 2021.

Total Assets

Reported total assets showed moderate growth from 19.96 billion US dollars in 2017 to 21.21 billion US dollars in 2021, albeit with a notable dip in 2020 that reduced assets to 18.13 billion before rebounding. This suggests a transient contraction possibly due to external factors in 2020.

Adjusted total assets, which exclude goodwill effects, also increased from 12.80 billion US dollars in 2017 to 13.14 billion in 2021, following a similar pattern with a decline in 2020 to approximately 12.12 billion. The smaller magnitude of adjusted assets compared to reported totals highlights significant goodwill on the balance sheet.

Total Shareholders’ Equity

Reported shareholders’ equity rose steadily from 7.62 billion US dollars in 2017 to 8.69 billion in 2019 before falling sharply to 6.17 billion in 2020 and partially recovering to 7.22 billion by 2021. This drop in 2020 indicates a material write-down or loss impacting equity during that year.

Adjusted shareholders’ equity, stripped of goodwill effects, started at 451 million US dollars in 2017, increasing substantially to 1.43 billion in 2019, then plummeting drastically to 160 million in 2020, and turning negative to -840 million by 2021. This negative equity position after adjustment suggests significant impairment losses on goodwill or other intangible assets leading to a deficit in tangible net equity by 2021.

Overall, the reported financials reflect steady growth masked by a sharp but temporary decline in 2020. The adjusted data highlights the importance of goodwill and intangible asset valuation, revealing growing vulnerability and impairment concerns culminating in negative adjusted shareholder equity by the end of 2021. This points to the need for a cautious assessment of asset quality and capital structure beyond the nominal reported figures.

Total Asset Turnover

The reported total asset turnover ratio exhibited a declining trend over the five-year period, decreasing from 0.69 in 2017 to 0.60 in 2021. The adjusted total asset turnover followed a similar downward pattern, starting at 1.08 in 2017, peaking slightly in 2018 at 1.13, and then declining to 0.97 by 2020 and 2021, indicating a reduction in efficiency in utilizing assets to generate sales when adjusted for goodwill.

Financial Leverage

The reported financial leverage ratio demonstrated minor fluctuations, initially declining from 2.62 in 2017 to 2.40 in 2019, followed by a sharp increase to 2.94 in both 2020 and 2021. In stark contrast, the adjusted financial leverage showed extreme volatility, starting at 28.35 in 2017, decreasing substantially to 9.5 by 2019, then spiking dramatically to 75.93 in 2020 before data for 2021 is unavailable. This variability suggests significant changes in the capital structure or accounting adjustments related to goodwill in the adjusted figures.

Return on Equity (ROE)

Reported ROE displayed an overall fluctuating trend, starting at 19.8% in 2017 and slightly decreasing to around 17.9% in 2018 and 2019. The year 2020 marked a sharp negative turnaround with a decline to -19.54%, followed by a recovery to 15.64% in 2021. The adjusted ROE exhibited much more extreme values, with very high positive returns from 2017 to 2019 (334.16%, 154.46%, and 108.74%, respectively), a drastic negative dip in 2020 at -755.08%, and lacking data for 2021. These large fluctuations in adjusted ROE are likely influenced by changes in goodwill accounting impacting equity and net income.

Return on Assets (ROA)

Reported ROA followed a somewhat stable trend around 7% from 2017 to 2019, before turning negative at -6.65% in 2020 and recovering slightly to 5.33% in 2021. The adjusted ROA also showed similar stability early on (around 11% from 2017 to 2019) but experienced a significant negative value of -9.94% in 2020, followed by a rebound to 8.6% in 2021. This indicates operational returns were adversely affected in 2020, with adjusted figures highlighting a more pronounced impact potentially due to goodwill adjustments.

Total Assets

Reported total assets exhibit a fluctuating pattern over the observed years, starting at 19,962 million USD in 2017 and peaking at 21,206 million USD in 2021. Notably, there was a decline to 18,126 million USD in 2020, indicating a temporary reduction in asset base during that year before recovering in 2021.

Adjusted total assets, which exclude goodwill, also show a similar trend with a decline in 2020. They increased steadily from 12,795 million USD in 2017 to 13,617 million USD in 2019, dropped to 12,119 million USD in 2020, then rose again to 13,143 million USD in 2021. This indicates that the goodwill adjustment moderates the asset values but trends similarly to reported assets.

Total Asset Turnover

The reported total asset turnover ratio gradually decreases from 0.69 in 2017 to 0.60 in 2021, showing a decline in the efficiency of the company in generating sales from its asset base over time.

The adjusted total asset turnover ratio, which considers adjusted assets excluding goodwill, reflects higher turnover ratios than reported, starting at 1.08 in 2017 and ending at 0.97 in 2021. Despite the decline, the adjusted turnover remains significantly above 1.0 for most years until a slight drop in 2020, indicating relatively better asset utilization when goodwill is excluded.

Insights

The decline in reported total asset turnover alongside the decrease in total assets in 2020 suggests a possible impact of external or operational challenges reducing asset utilization efficiency.

The adjusted ratios and asset values show that goodwill comprises a substantial portion of total assets, influencing turnover ratios and presenting a more conservative and possibly more realistic view of asset efficiency.

The recovery in asset base in 2021, both reported and adjusted, albeit coupled with a continued decline in reported turnover, may indicate an increased investment in assets that has not yet translated into proportional revenue growth.

The financial data reveals several noteworthy trends concerning total assets, shareholders’ equity, and financial leverage over the five-year period.

Total Assets

Reported total assets exhibited a generally upward trend from 2017 to 2021, increasing from approximately 19.96 billion USD in 2017 to 21.21 billion USD in 2021. However, there was a decline observable in 2020, when total assets dropped to 18.13 billion USD before recovering in 2021. Adjusted total assets, which exclude goodwill, show a similar pattern: they increased steadily from 12.80 billion USD in 2017 to 13.62 billion USD in 2019, then declined to 12.12 billion USD in 2020, and rose again to 13.14 billion USD in 2021. This pattern suggests fluctuations in asset composition, possibly due to impairments or changes in intangible assets.

Shareholders’ Equity

Reported total shareholders’ equity rose from 7.62 billion USD in 2017 to a peak of 8.69 billion USD in 2019, but then sharply declined to 6.17 billion USD in 2020 before partially recovering to 7.22 billion USD in 2021. In contrast, adjusted shareholders’ equity, which excludes goodwill, started at a much lower base of 451 million USD in 2017 and initially increased to 1.43 billion USD in 2019. However, a sharp deterioration occurred in 2020, dropping to 160 million USD, and turning negative to -840 million USD by 2021. This indicates significant negative adjustments or write-downs related to goodwill or other intangible assets impacting the net equity when goodwill is excluded.

Financial Leverage

Reported financial leverage showed modest variability, declining from 2.62 in 2017 to 2.40 in 2019, before sharply increasing to 2.94 in both 2020 and 2021. This suggests an increased reliance on debt or liabilities relative to equity during the latter years. Adjusted financial leverage exhibited more extreme fluctuations: starting very high at 28.35 in 2017, it steeply declined to 9.5 in 2019, then dramatically surged to 75.93 in 2020. No data was available for 2021. The extreme spikes in adjusted financial leverage reflect the significant decrease in adjusted equity relative to adjusted assets, indicating heightened financial risk once goodwill is excluded.

Overall, the adjusted figures reveal much higher volatility and risk than suggested by the reported data, primarily due to the impact of goodwill and related adjustments. The declines in adjusted shareholders’ equity and spikes in adjusted leverage in the later years point to potential asset impairments or write-downs that substantially affect the company's financial position when goodwill is removed from consideration. Meanwhile, reported figures indicate relative stability in asset growth and leverage, with a notable but less pronounced dip in 2020 likely associated with external economic factors.

The analysis focuses on the trends in shareholders' equity and return on equity (ROE) for the periods from 2017 to 2021, considering both reported and goodwill-adjusted figures.

Reported Total Shareholders’ Equity

The reported total shareholders’ equity generally increased from 7,618,500 thousand US dollars in 2017 to 8,685,300 thousand US dollars in 2019. However, a significant decline occurred in 2020, where equity dropped sharply to 6,166,500 thousand US dollars, followed by a moderate recovery in 2021, reaching 7,224,200 thousand US dollars. This pattern suggests a period of growth ending in 2019, disrupted by a notable contraction in 2020, potentially linked to external or internal financial disturbances, and a partial rebound the following year.

Adjusted Total Shareholders’ Equity

Goodwill-adjusted equity shows a distinct and volatile trend compared to the reported figures. Starting much lower than reported equity at 451,400 thousand US dollars in 2017, it rose sharply to 1,433,600 thousand US dollars by 2019. Post-2019, the adjusted equity fell precipitously, plummeting to 159,600 thousand US dollars in 2020 and turning negative (-839,700 thousand US dollars) in 2021. This volatility and negative adjustment in 2021 highlight issues with intangible asset valuations or potential impairments affecting the company's capital base after goodwill adjustments.

Reported Return on Equity (ROE)

The reported ROE remained relatively stable and positive from 2017 through 2019, fluctuating between approximately 17.86% and 19.95%. In 2020, a drastic negative return (-19.54%) is observed, indicating a period of losses or significantly reduced profitability relative to shareholders’ equity. In 2021, the ROE returned to a positive level of 15.64%, demonstrating partial recovery but not rebounding to the pre-2020 peak performance.

Adjusted Return on Equity (ROE)

The goodwill-adjusted ROE exhibits extreme volatility. It was extraordinarily high in 2017 (334.16%) and then declined sharply in subsequent years to 108.74% in 2019. In 2020, the ROE turned sharply negative (-755.08%), indicating severe losses when adjustments for goodwill are accounted for. No data is available for 2021 in this category, but the prior trend suggests significant instability and risk in the company's underlying asset base once goodwill adjustments are made.

In summary, the company shows stable growth and profitability under reported accounting standards until 2019, followed by substantial financial disturbance in 2020 with some recovery in 2021. When adjusted for goodwill, the equity and profitability metrics reveal heightened volatility and underlying asset impairment issues, culminating in negative adjusted equity and extreme negative ROE, pointing to potential challenges in asset valuation and earnings quality.

The analysis of the annual financial data over the five-year period reveals notable trends and fluctuations in asset values and return on assets (ROA), both reported and goodwill adjusted.

Total Assets

The reported total assets exhibit a generally increasing trend from the end of 2017 to the end of 2021, rising from approximately 19.96 billion US dollars to 21.21 billion US dollars. An exception occurs in 2020, when total reported assets decreased to 18.13 billion US dollars before recovering in 2021.

Similarly, the goodwill adjusted total assets follow a comparable pattern but at lower absolute values, starting at approximately 12.80 billion US dollars in 2017 and increasing to around 13.14 billion US dollars in 2021, with a noticeable dip in 2020 to about 12.12 billion US dollars.

Return on Assets (ROA)

Reported ROA demonstrates a relatively stable level around 7-7.5% from 2017 to 2019, indicating consistent profitability relative to reported asset base. However, a sharp decline occurs in 2020, falling to a negative 6.65%, indicating operational losses or asset impairments during this period. The ROA rebounded to a positive 5.33% in 2021 but remained below pre-2020 levels.

The goodwill adjusted ROA trend mirrors the reported ROA but generally remains higher, reflecting a better return measure after removing goodwill. It decreased from 11.79% in 2017 to 11.00% in 2018 and remained relatively stable through 2019 at 11.45%. In 2020, a substantial negative shift to -9.94% occurred, even more pronounced than the reported figure. In 2021, it improved significantly to 8.6%, surpassing the reported figure and indicating a recovery in operational efficiency excluding goodwill effects.

Overall, the data suggest that the company experienced a period of stable asset growth and strong profitability until 2019, followed by a significant disruption in 2020 that adversely impacted asset levels and operational returns. The subsequent recovery in 2021 reflects improving conditions, though profitability has not yet returned to pre-2020 levels. The adjusted figures illustrate that excluding goodwill presents a somewhat clearer picture of underlying asset utilization and profitability dynamics.