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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 Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
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
| May 27, 2018 | May 28, 2017 | May 29, 2016 | May 31, 2015 | May 25, 2014 | May 26, 2013 | ||||||||
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| Brands and other indefinite-lived intangibles | |
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| Intangible assets not subject to amortization | |
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| Franchise agreements, customer relationships, and other finite-lived intangibles | |
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| Accumulated amortization | |
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| Intangible assets subject to amortization | |
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| Other intangible assets | |
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| Goodwill and other intangible assets | |
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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 | 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. | 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
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).
General Mills Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Goodwill (Summary)
General Mills Inc., adjusted ratios
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. |
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| 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. |
General Mills Inc., Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
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
= ÷ =
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. | General Mills Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 and from 2017 to 2018. |
Adjusted Financial Leverage
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
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted 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. |
Adjusted Return on Equity (ROE)
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 × ÷ =
2 Adjusted ROE = 100 × Net earnings attributable to General Mills ÷ Adjusted stockholders’ equity
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. |
Adjusted Return on Assets (ROA)
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 × ÷ =
2 Adjusted ROA = 100 × Net earnings attributable to General Mills ÷ Adjusted total assets
= 100 × ÷ =
| 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. |
