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Analysis of Goodwill and Intangible Assets
Difficulty: Advanced
- Goodwill and Intangible Assets Accounting Policy
- Goodwill and Intangible Assets Disclosure
- Analyst Adjustments: Removal of Goodwill
- Adjusted Ratios: Removal of Goodwill (Summary)
- Adjusted Net Profit Margin
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
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: 10-K (filing date: 2018-11-19).
Goodwill and Intangible Assets Disclosure
Emerson Electric Co., Statement of Financial Position, Goodwill and Intangible Assets
USD $ in millions
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| Identifiable intangible assets, net carrying amount | |
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| Goodwill | |
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| Goodwill and other intangibles | |
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Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).
| 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 increased from 2016 to 2017 and from 2017 to 2018. |
| Goodwill | Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. | Emerson Electric Co.’s goodwill increased from 2016 to 2017 and from 2017 to 2018. |
| 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 increased from 2016 to 2017 and from 2017 to 2018. |
Analyst Adjustments: Removal of Goodwill
Emerson Electric Co., adjustments to financial data
USD $ in millions
Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).
Emerson Electric Co., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Goodwill (Summary)
Emerson Electric Co., adjusted ratios
Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).
| 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 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Emerson Electric Co.’s adjusted total asset turnover improved from 2016 to 2017 and from 2017 to 2018. |
| 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 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. | Emerson Electric Co.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Emerson Electric Co.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018. |
Emerson Electric Co., Ratios: Reported vs. Adjusted
Adjusted Net Profit Margin
Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).
2018 Calculations
1 Net profit margin = 100 × Net earnings common stockholders ÷ Net sales
= 100 × ÷ =
2 Adjusted net profit margin = 100 × Adjusted net earnings common stockholders ÷ Net sales
= 100 × ÷ =
| 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 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).
2018 Calculations
1 Total asset turnover = Net sales ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= ÷ =
| 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 improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).
2018 Calculations
1 Financial leverage = Total assets ÷ Common stockholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted common 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. |
Emerson Electric Co.’s adjusted financial leverage declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).
2018 Calculations
1 ROE = 100 × Net earnings common stockholders ÷ Common stockholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Adjusted net earnings common stockholders ÷ Adjusted common stockholders’ equity
= 100 × ÷ =
| 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 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2018-11-19), 10-K (filing date: 2017-11-20), 10-K (filing date: 2016-11-16), 10-K (filing date: 2015-11-18), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-19).
2018 Calculations
1 ROA = 100 × Net earnings common stockholders ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Adjusted net earnings common stockholders ÷ Adjusted total assets
= 100 × ÷ =
| 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 improved from 2016 to 2017 and from 2017 to 2018. |