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Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Goodwill is not subject to amortization and is tested for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. In fiscal 2016, General Mills changed the date of the annual goodwill and indefinite-lived intangible asset impairment assessment from the first day of the third quarter to the first day of the second quarter to more closely align with the timing of the annual long-range planning process. Impairment testing is performed for each of General Mills' reporting units. General Mills compares the carrying value of a reporting unit, including goodwill, to the fair value of the unit. Carrying value is based on the assets and liabilities associated with the operations of that reporting unit, which often requires allocation of shared or corporate items among reporting units. If the carrying amount of a reporting unit exceeds its fair value, impairment has occurred. General Mills recognizes an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value up to the total amount of goodwill allocated to the reporting unit. General Mills' estimates of fair value are determined based on a discounted cash flow model. Growth rates for sales and profits are determined using inputs from General Mills' long-range planning process. General Mills also makes estimates of discount rates, perpetuity growth assumptions, market comparables, and other factors.

General Mills evaluates the useful lives of the other intangible assets, mainly brands, to determine if they are finite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, known technological advances, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. Intangible assets that are deemed to have definite lives are amortized on a straight-line basis, over their useful lives, generally ranging from 4 to 30 years.

General Mills' indefinite-lived intangible assets, mainly intangible assets primarily associated with the Blue Buffalo, Pillsbury, Totino's, Progresso, Yoplait, Old El Paso, Yoki, Häagen-Dazs, and Annie's brands, are also tested for impairment annually and whenever events or changes in circumstances indicate that their carrying value may not be recoverable. General Mills' estimate of the fair value of the brands is based on a discounted cash flow model using inputs which included projected revenues from the long-range plan, assumed royalty rates that could be payable if General Mills did not own the brands, and a discount rate.

General Mills' finite-lived intangible assets, primarily acquired franchise agreements and customer relationships, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset are less than the carrying amount of the asset. Assets generally have identifiable cash flows and are largely independent of other assets. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset over its fair value. Fair value is measured using a discounted cash flow model or other similar valuation model, as appropriate.

Source: 10-K (filing date: 2018-06-29).


Goodwill and Intangible Assets Disclosure

General Mills Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in thousands

Microsoft Excel LibreOffice Calc
May 27, 2018 May 28, 2017 May 29, 2016 May 31, 2015 May 25, 2014 May 26, 2013
Goodwill hidden hidden hidden hidden hidden hidden
Brands and other indefinite-lived intangibles hidden hidden hidden hidden hidden hidden
Intangible assets not subject to amortization hidden hidden hidden hidden hidden hidden
Franchise agreements, customer relationships, and other finite-lived intangibles hidden hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden hidden
Intangible assets subject to amortization hidden hidden hidden hidden hidden hidden
Other intangible assets hidden hidden hidden hidden hidden hidden
Goodwill and other intangible assets hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-06-29), 10-K (filing date: 2017-06-29), 10-K (filing date: 2016-06-30), 10-K (filing date: 2015-07-06), 10-K (filing date: 2014-07-03), 10-K (filing date: 2013-07-03).

Item Description The company
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. General Mills Inc.'s goodwill increased from 2016 to 2017 and from 2017 to 2018.
Other intangible assets Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. General Mills Inc.'s other intangible assets declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Goodwill and other intangible assets Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. General Mills Inc.'s goodwill and other intangible assets declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Analyst Adjustments: Removal of Goodwill

General Mills Inc., adjustments to financial data

USD $ in thousands

Microsoft Excel LibreOffice Calc
May 27, 2018 May 28, 2017 May 29, 2016 May 31, 2015 May 25, 2014 May 26, 2013
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 Stockholders' Equity
Stockholders' equity (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Stockholders' equity (adjusted) hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-06-29), 10-K (filing date: 2017-06-29), 10-K (filing date: 2016-06-30), 10-K (filing date: 2015-07-06), 10-K (filing date: 2014-07-03), 10-K (filing date: 2013-07-03).


Adjusted Ratios: Removal of Goodwill (Summary)

General Mills Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
May 27, 2018 May 28, 2017 May 29, 2016 May 31, 2015 May 25, 2014 May 26, 2013
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

Based on: 10-K (filing date: 2018-06-29), 10-K (filing date: 2017-06-29), 10-K (filing date: 2016-06-30), 10-K (filing date: 2015-07-06), 10-K (filing date: 2014-07-03), 10-K (filing date: 2013-07-03).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. General Mills Inc.'s adjusted total asset turnover deteriorated 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.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. General Mills Inc.'s adjusted ROA deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
May 27, 2018 May 28, 2017 May 29, 2016 May 31, 2015 May 25, 2014 May 26, 2013
As Reported
Net sales (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Net sales (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-06-29), 10-K (filing date: 2017-06-29), 10-K (filing date: 2016-06-30), 10-K (filing date: 2015-07-06), 10-K (filing date: 2014-07-03), 10-K (filing date: 2013-07-03).

2018 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. General Mills Inc.'s adjusted total asset turnover deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
May 27, 2018 May 28, 2017 May 29, 2016 May 31, 2015 May 25, 2014 May 26, 2013
As Reported
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-06-29), 10-K (filing date: 2017-06-29), 10-K (filing date: 2016-06-30), 10-K (filing date: 2015-07-06), 10-K (filing date: 2014-07-03), 10-K (filing date: 2013-07-03).

2018 Calculations

1 Financial leverage = Total assets ÷ Stockholders' equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted 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.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
May 27, 2018 May 28, 2017 May 29, 2016 May 31, 2015 May 25, 2014 May 26, 2013
As Reported
Net earnings attributable to General Mills (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden hidden
ROE1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Net earnings attributable to General Mills (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted stockholders' equity (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted ROE2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-06-29), 10-K (filing date: 2017-06-29), 10-K (filing date: 2016-06-30), 10-K (filing date: 2015-07-06), 10-K (filing date: 2014-07-03), 10-K (filing date: 2013-07-03).

2018 Calculations

1 ROE = 100 × Net earnings attributable to General Mills ÷ Stockholders' equity
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Net earnings attributable to General Mills ÷ Adjusted stockholders' equity
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
May 27, 2018 May 28, 2017 May 29, 2016 May 31, 2015 May 25, 2014 May 26, 2013
As Reported
Net earnings attributable to General Mills (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Total assets (USD $ in thousands) hidden hidden hidden hidden hidden hidden
ROA1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Net earnings attributable to General Mills (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted total assets (USD $ in thousands) hidden hidden hidden hidden hidden hidden
Adjusted ROA2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-06-29), 10-K (filing date: 2017-06-29), 10-K (filing date: 2016-06-30), 10-K (filing date: 2015-07-06), 10-K (filing date: 2014-07-03), 10-K (filing date: 2013-07-03).

2018 Calculations

1 ROA = 100 × Net earnings attributable to General Mills ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Net earnings attributable to General Mills ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. General Mills Inc.'s adjusted ROA deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.