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Microsoft Excel LibreOffice Calc

Home Depot Inc. (HD)


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired. Home Depot does not amortize goodwill, but assesses the recoverability of goodwill in the third quarter of each fiscal year, or more often if indicators warrant, by determining whether the fair value of each reporting unit supports its carrying value. Each fiscal year, Home Depot may assess qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments, with a quantitative assessment completed at least once every three years. Home Depot completed the last quantitative assessment in fiscal 2016.

In fiscal 2018, Home Depot completed the annual assessment of the recoverability of goodwill for the U.S., Canada, and Mexico reporting units. Home Depot performed qualitative assessments, concluding that the fair value of the reporting units substantially exceeded the respective reporting unit’s carrying value, including goodwill. As a result, there were no impairment charges related to goodwill for fiscal 2018, fiscal 2017, or fiscal 2016.

Other Intangible Assets

Home Depot amortizes the cost of other finite-lived intangible assets over their estimated useful lives, which range up to 12 years. Intangible assets with indefinite lives are tested in the third quarter of each fiscal year for impairment, or more often if indicators warrant. Intangible assets other than goodwill are included in other assets.

In January 2019, Home Depot recognized a pretax impairment loss of $247 million for certain trade names as a result of a shift in strategy for the MRO business. Home Depot’s remaining finite-lived and indefinite-lived intangibles were not material at February 3, 2019.

Source: 10-K (filing date: 2019-03-28).


Analyst Adjustments: Removal of Goodwill

Home Depot Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Feb 3, 2019 Jan 28, 2018 Jan 29, 2017 Jan 31, 2016 Feb 1, 2015 Feb 2, 2014
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 (deficit)
Stockholders’ equity (deficit) (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Stockholders’ equity (deficit) (adjusted) hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).


Home Depot Inc., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Goodwill (Summary)

Home Depot Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Feb 3, 2019 Jan 28, 2018 Jan 29, 2017 Jan 31, 2016 Feb 1, 2015 Feb 2, 2014
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: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Home Depot Inc.’s adjusted total asset turnover improved from 2017 to 2018 and from 2018 to 2019.
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. Home Depot Inc.’s adjusted ROA improved from 2017 to 2018 and from 2018 to 2019.

Home Depot Inc., Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Feb 3, 2019 Jan 28, 2018 Jan 29, 2017 Jan 31, 2016 Feb 1, 2015 Feb 2, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net sales hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net sales hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

2019 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. Home Depot Inc.’s adjusted total asset turnover improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Feb 3, 2019 Jan 28, 2018 Jan 29, 2017 Jan 31, 2016 Feb 1, 2015 Feb 2, 2014
As Reported
Selected Financial Data (USD $ in millions)
Total assets hidden hidden hidden hidden hidden hidden
Stockholders’ equity (deficit) hidden hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted total assets hidden hidden hidden hidden hidden hidden
Adjusted stockholders’ equity (deficit) hidden hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

2019 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity (deficit)
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity (deficit)
= 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
Feb 3, 2019 Jan 28, 2018 Jan 29, 2017 Jan 31, 2016 Feb 1, 2015 Feb 2, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net earnings hidden hidden hidden hidden hidden hidden
Stockholders’ equity (deficit) hidden hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net earnings hidden hidden hidden hidden hidden hidden
Adjusted stockholders’ equity (deficit) hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

2019 Calculations

1 ROE = 100 × Net earnings ÷ Stockholders’ equity (deficit)
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Net earnings ÷ Adjusted stockholders’ equity (deficit)
= 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
Feb 3, 2019 Jan 28, 2018 Jan 29, 2017 Jan 31, 2016 Feb 1, 2015 Feb 2, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net earnings hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net earnings hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).

2019 Calculations

1 ROA = 100 × Net earnings ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Net earnings ÷ 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. Home Depot Inc.’s adjusted ROA improved from 2017 to 2018 and from 2018 to 2019.