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Analysis of Inventory
Difficulty: Advanced
- Inventory Accounting Policy
- Inventory Disclosure
- Adjustment to Inventory: from LIFO to FIFO
- Adjusted Ratios: LIFO vs. FIFO (Summary)
- Adjusted Current Ratio
- Adjusted Net Profit Margin
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Inventory Accounting Policy
All inventories are stated at the lower of cost or realizable values. Cost for a portion of GE U.S. inventories is determined on a last-in, first-out (LIFO) basis. Cost of other GE inventories is determined on a first-in, first-out (FIFO) basis. LIFO was used for approximately 32% and 34% of GE inventories in 2017 and 2016, respectively.
Source: General Electric Co., Annual Report
Inventory Disclosure
General Electric Co., Statement of Financial Position, Inventory
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
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| Revaluation to LIFO | |
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| Inventories at LIFO | |
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Source: Based on data from General Electric Co. Annual Reports
| Item | Description | The company |
|---|---|---|
| Raw materials and work in process | The aggregate carrying amount as of the balance sheet date of items held by the entity which are partially completed at the time of measurement and unprocessed items that will go through the production process and become part of the final product. Includes supplies used directly or indirectly in the manufacturing or production process. This element may be used when the reporting entity combines work in process and raw materials into an aggregate amount. | General Electric Co.'s raw materials and work in process declined from 2015 to 2016 and from 2016 to 2017. |
| Finished goods | Carrying amount as of the balance sheet date of merchandise or goods held by the company that are readily available for sale. | General Electric Co.'s finished goods increased from 2015 to 2016 and from 2016 to 2017. |
| Inventories at LIFO | 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). | General Electric Co.'s inventories at LIFO declined 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 millions
General Electric Co.'s inventory value on Dec 31, 2017 would be $21,407 (in millions) if the FIFO inventory method was used instead of LIFO. General Electric Co.'s inventories, valued on a LIFO basis, on Dec 31, 2017 were $21,923 . General Electric Co.'s inventories would have been $(516) higher than reported on Dec 31, 2017 if the FIFO method had been used instead.
Adjusted Ratios: LIFO vs. FIFO (Summary)
General Electric Co., adjusted ratios
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by current liabilities. | General Electric Co.'s adjusted current ratio improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | General Electric Co.'s adjusted net profit margin improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | General Electric Co.'s adjusted total asset turnover improved from 2015 to 2016 but then slightly deteriorated 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. |
General Electric Co.'s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | General Electric 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. | General Electric Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Current Ratio
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. | General Electric Co.'s adjusted current ratio improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
Adjusted Net Profit Margin
2017 Calculations
1 Net profit margin = 100 × Net earnings (loss) attributable to the Company ÷ Sales of goods and services
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net earnings (loss) attributable to the Company ÷ Sales of goods and services
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by revenue. | General Electric Co.'s adjusted net profit margin improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level. |
Adjusted Total Asset Turnover
2017 Calculations
1 Total asset turnover = Sales of goods and services ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Sales of goods and services ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | General Electric Co.'s adjusted total asset turnover improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
Adjusted Financial Leverage
2017 Calculations
1 Financial leverage = Total assets ÷ Total GE shareowners' equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total GE shareowners' 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. |
General Electric Co.'s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Adjusted Return on Equity (ROE)
2017 Calculations
1 ROE = 100 × Net earnings (loss) attributable to the Company ÷ Total GE shareowners' equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net earnings (loss) attributable to the Company ÷ Adjusted total GE shareowners' equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | General Electric Co.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Return on Assets (ROA)
2017 Calculations
1 ROA = 100 × Net earnings (loss) attributable to the Company ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net earnings (loss) attributable to the Company ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | General Electric Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
