.Analysis of Inventory
Difficulty: Advanced
Inventory Disclosure
Eli Lilly & Co., Statement of Financial Position, Inventory
USD $ in thousands
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Finished products | |||||
| | Work in process | |||||
| | Raw materials and supplies | |||||
| | Inventories, approximates replacement cost | |||||
| | Increase (reduction) to LIFO cost | |||||
| | Inventories |
Source: Based on data from Eli Lilly & Co. Annual Reports
| Item | Description | The company |
|---|---|---|
| Finished products | Carrying amount as of the balance sheet date of merchandise or goods held by the company that are readily available for sale. | Eli Lilly & Co.'s finished products declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 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. | Eli Lilly & Co.'s work in process increased from 2015 to 2016 and from 2016 to 2017. |
| Raw materials and supplies | Aggregated amount of unprocessed materials to be used in manufacturing or production process and supplies that will be consumed. | Eli Lilly & Co.'s raw materials and supplies increased from 2015 to 2016 and 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). | Eli Lilly & Co.'s inventories increased from 2015 to 2016 and from 2016 to 2017. |
Adjustment to Inventory: from LIFO to FIFO
Adjusting LIFO Inventory to FIFO (Current) Cost
USD $ in thousands
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| 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 Eli Lilly And Company Shareholders' Equity | ||||||
| | Total Eli Lilly and Company shareholders' equity (as reported) | |||||
| | Add: Inventory LIFO reserve | |||||
| | Total Eli Lilly and Company shareholders' equity (adjusted) | |||||
| Adjustment to Net Income (loss) | ||||||
| | Net income (loss) (as reported) | |||||
| | Add: Increase (decrease) in inventory LIFO reserve | |||||
| | Net income (loss) (adjusted) | |||||
Eli Lilly & Co.'s inventory value on Dec 31, 2017 would be $4,397,900 (in thousands) if the FIFO inventory method was used instead of LIFO. Eli Lilly & Co.'s inventories, valued on a LIFO basis, on Dec 31, 2017 were $4,458,300 . Eli Lilly & Co.'s inventories would have been $(60,400) higher than reported on Dec 31, 2017 if the FIFO method had been used instead.
Adjusted Ratios: LIFO vs. FIFO (Summary)
Eli Lilly & Co., adjusted ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| 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) | % | % | % | % | % |
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by current liabilities. | Eli Lilly & Co.'s adjusted current ratio deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | Eli Lilly & Co.'s adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Eli Lilly & Co.'s adjusted total asset turnover deteriorated from 2015 to 2016 and 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. |
Eli Lilly & Co.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Eli Lilly & Co.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Eli Lilly & Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Current Ratio
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Current assets (USD $ in thousands) | |||||
| | Current liabilities (USD $ in thousands) | |||||
| | Current ratio1 | |||||
| Adjusted: from LIFO to FIFO | ||||||
| | Adjusted current assets (USD $ in thousands) | |||||
| | Current liabilities (USD $ in thousands) | |||||
| | Adjusted current ratio2 | |||||
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. | Eli Lilly & Co.'s adjusted current ratio deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Net Profit Margin
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) (USD $ in thousands) | |||||
| | Revenue (USD $ in thousands) | |||||
| | Net profit margin1 | % | % | % | % | % |
| Adjusted: from LIFO to FIFO | ||||||
| | Adjusted net income (loss) (USD $ in thousands) | |||||
| | Revenue (USD $ in thousands) | |||||
| | Adjusted net profit margin2 | % | % | % | % | % |
2017 Calculations
1 Net profit margin = 100 × Net income (loss) ÷ Revenue
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net income (loss) ÷ Revenue
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | Eli Lilly & Co.'s adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly 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 | ||||||
| | Revenue (USD $ in thousands) | |||||
| | Total assets (USD $ in thousands) | |||||
| | Total asset turnover1 | |||||
| Adjusted: from LIFO to FIFO | ||||||
| | Revenue (USD $ in thousands) | |||||
| | Adjusted total assets (USD $ in thousands) | |||||
| | Adjusted total asset turnover2 | |||||
2017 Calculations
1 Total asset turnover = Revenue ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Eli Lilly & Co.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
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 Eli Lilly and Company shareholders' equity (USD $ in thousands) | |||||
| | Financial leverage1 | |||||
| Adjusted: from LIFO to FIFO | ||||||
| | Adjusted total assets (USD $ in thousands) | |||||
| | Adjusted total Eli Lilly and Company shareholders' equity (USD $ in thousands) | |||||
| | Adjusted financial leverage2 | |||||
2017 Calculations
1 Financial leverage = Total assets ÷ Total Eli Lilly and Company shareholders' equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Eli Lilly and Company shareholders' 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. |
Eli Lilly & Co.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Equity (ROE)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) (USD $ in thousands) | |||||
| | Total Eli Lilly and Company shareholders' equity (USD $ in thousands) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted: from LIFO to FIFO | ||||||
| | Adjusted net income (loss) (USD $ in thousands) | |||||
| | Adjusted total Eli Lilly and Company shareholders' equity (USD $ in thousands) | |||||
| | Adjusted ROE2 | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net income (loss) ÷ Total Eli Lilly and Company shareholders' equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net income (loss) ÷ Adjusted total Eli Lilly and Company shareholders' equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Eli Lilly & Co.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Return on Assets (ROA)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) (USD $ in thousands) | |||||
| | Total assets (USD $ in thousands) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted: from LIFO to FIFO | ||||||
| | Adjusted net income (loss) (USD $ in thousands) | |||||
| | Adjusted total assets (USD $ in thousands) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income (loss) ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net income (loss) ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Eli Lilly & Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
