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Microsoft Excel LibreOffice Calc


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Assets and liabilities acquired in business combinations are accounted for using the acquisition method and recorded at their respective fair values. Substantially all goodwill is assigned to the reporting unit that acquires a business. A reporting unit is an operating segment as defined in ASC 280, Segment Reporting, or a business one level below an operating segment if discrete financial information for that business unit is prepared and regularly reviewed by the segment manager. Emerson conducts annual impairment tests of goodwill in the fourth quarter. If an initial assessment indicates it is more likely than not goodwill might be impaired, it is evaluated by comparing the reporting unit's estimated fair value to its carrying value. Goodwill is also tested for impairment between annual tests if events or circumstances indicate the fair value of a unit may be less than its carrying value. If the carrying amount exceeds the estimated fair value, impairment is recognized to the extent that recorded goodwill exceeds the implied fair value of that goodwill. Estimated fair values of reporting units are Level 3 measures and are developed generally under an income approach that discounts estimated future cash flows using risk-adjusted interest rates.

All of Emerson's identifiable intangible assets are subject to amortization on a straight-line basis over their estimated useful lives. Identifiable intangibles consist of intellectual property such as patents and trademarks, customer relationships and capitalized software. Identifiable intangibles are also subject to evaluation for potential impairment if events or circumstances indicate the carrying amount may not be recoverable.

Source: Emerson Electric Co., Annual Report


Goodwill and Intangible Assets Disclosure

Emerson Electric Co., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

Microsoft Excel LibreOffice Calc
Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014 Sep 30, 2013 Sep 30, 2012
Customer relationships hidden hidden hidden hidden hidden hidden
Intellectual property hidden hidden hidden hidden hidden hidden
Capitalized software hidden hidden hidden hidden hidden hidden
Identifiable intangible assets, gross carrying amount hidden hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden hidden
Identifiable intangible assets, net carrying amount hidden hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden hidden
Goodwill and other intangibles hidden hidden hidden hidden hidden hidden

Source: Based on data from Emerson Electric Co. Annual Reports

Item Description The company
Identifiable intangible assets, net carrying amount Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Emerson Electric Co.'s identifiable intangible assets, net carrying amount declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Goodwill Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions. Emerson Electric Co.'s goodwill declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level.
Goodwill and other intangibles Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Emerson Electric Co.'s goodwill and other intangibles declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level.

Analyst Adjustments: Removal of Goodwill

Emerson Electric Co., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014 Sep 30, 2013 Sep 30, 2012
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Common Stockholders' Equity
Common stockholders' equity (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Common stockholders' equity (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Net Earnings Common Stockholders
Net earnings common stockholders (as reported) hidden hidden hidden hidden hidden hidden
Add: Goodwill impairment hidden hidden hidden hidden hidden hidden
Net earnings common stockholders (adjusted) hidden hidden hidden hidden hidden hidden

Adjusted Ratios: Removal of Goodwill (Summary)

Emerson Electric Co., adjusted ratios

Microsoft Excel LibreOffice Calc
Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014 Sep 30, 2013 Sep 30, 2012
Net Profit Margin
Reported net profit margin hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted net profit margin hidden% hidden% hidden% hidden% hidden% hidden%
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted ROE hidden% hidden% hidden% hidden% hidden% hidden%
Return on Assets (ROA)
Reported ROA hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted ROA hidden% hidden% hidden% hidden% hidden% hidden%
Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Emerson Electric Co.'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. Emerson Electric Co.'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.
Emerson Electric Co.'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. Emerson Electric Co.'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. Emerson Electric Co.'s adjusted ROA deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014 Sep 30, 2013 Sep 30, 2012
As Reported
Net earnings common stockholders (USD $ in millions) hidden hidden hidden hidden hidden hidden
Net sales (USD $ in millions) hidden hidden hidden hidden hidden hidden
Net profit margin1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Adjusted net earnings common stockholders (USD $ in millions) hidden hidden hidden hidden hidden hidden
Net sales (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted net profit margin2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 Net profit margin = 100 × Net earnings common stockholders ÷ Net sales
= 100 × hidden ÷ hidden = hidden%

2 Adjusted net profit margin = 100 × Adjusted net earnings common stockholders ÷ Net sales
= 100 × hidden ÷ hidden = hidden%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Emerson Electric Co.'s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014 Sep 30, 2013 Sep 30, 2012
As Reported
Net sales (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Net sales (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

2017 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Emerson Electric Co.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014 Sep 30, 2013 Sep 30, 2012
As Reported
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Common stockholders' equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted common stockholders' equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

2017 Calculations

1 Financial leverage = Total assets ÷ Common stockholders' equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted common stockholders' equity
= hidden ÷ hidden = hidden

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.
Emerson Electric Co.'s adjusted financial leverage declined from 2015 to 2016 and from 2016 to 2017.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014 Sep 30, 2013 Sep 30, 2012
As Reported
Net earnings common stockholders (USD $ in millions) hidden hidden hidden hidden hidden hidden
Common stockholders' equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
ROE1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Adjusted net earnings common stockholders (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted common stockholders' equity (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted ROE2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 ROE = 100 × Net earnings common stockholders ÷ Common stockholders' equity
= 100 × hidden ÷ hidden = hidden%

2 Adjusted ROE = 100 × Adjusted net earnings common stockholders ÷ Adjusted common stockholders' equity
= 100 × hidden ÷ hidden = hidden%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Emerson Electric Co.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Sep 30, 2017 Sep 30, 2016 Sep 30, 2015 Sep 30, 2014 Sep 30, 2013 Sep 30, 2012
As Reported
Net earnings common stockholders (USD $ in millions) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
ROA1 hidden% hidden% hidden% hidden% hidden% hidden%
Adjusted for Goodwill
Adjusted net earnings common stockholders (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in millions) hidden hidden hidden hidden hidden hidden
Adjusted ROA2 hidden% hidden% hidden% hidden% hidden% hidden%

2017 Calculations

1 ROA = 100 × Net earnings common stockholders ÷ Total assets
= 100 × hidden ÷ hidden = hidden%

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

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Emerson Electric Co.'s adjusted ROA deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.