Microsoft Excel LibreOffice Calc

Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Goodwill and Indefinite-Lived Intangible Assets

Goodwill and indefinite-lived intangible assets are subject to impairment testing annually as of March 31, and whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. Honeywell completed the annual goodwill impairment test as of March 31, 2018 and determined that there was no impairment as of that date.

Other Intangible Assets with Determinable Lives

Other intangible assets with determinable lives consist of customer lists, technology, patents and trademarks and other intangibles and are amortized over their estimated useful lives, ranging from 2 to 24 years.

Source: 10-K (filing date: 2019-02-08).


Goodwill and Intangible Assets Disclosure

Honeywell International Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Patents and technology 1,996  1,990  1,841  1,688  1,400 
Customer relationships 3,785  3,911  3,816  3,558  1,867 
Trademarks 326  328  284  230  191 
Other 349  353  359  323  291 
Determinable life intangibles, gross carrying amount 6,456  6,582  6,300  5,799  3,749 
Accumulated amortization (3,347) (3,131) (2,679) (2,398) (2,247)
Determinable life intangibles, net carrying amount 3,109  3,451  3,621  3,401  1,502 
Trademarks 1,030  1,045  1,013  1,176  706 
Indefinite life intangibles 1,030  1,045  1,013  1,176  706 
Other intangible assets, net 4,139  4,496  4,634  4,577  2,208 
Goodwill 15,546  18,277  17,707  15,895  12,788 
Goodwill and other intangible assets, net 19,685  22,773  22,341  20,472  14,996 

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

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

Analyst Adjustments: Removal of Goodwill

Honeywell International Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Total Assets
Total assets (as reported) 57,773  59,387  54,146  49,316  45,451 
Less: Goodwill 15,546  18,277  17,707  15,895  12,788 
Total assets (adjusted) 42,227  41,110  36,439  33,421  32,663 
Adjustment to Total Honeywell Shareowners’ Equity
Total Honeywell shareowners’ equity (as reported) 18,180  17,276  19,369  18,283  17,657 
Less: Goodwill 15,546  18,277  17,707  15,895  12,788 
Total Honeywell shareowners’ equity (adjusted) 2,634  (1,001) 1,662  2,388  4,869 

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).


Honeywell International Inc., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Goodwill (Summary)

Honeywell International Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Total Asset Turnover
Reported total asset turnover 0.72 0.68 0.73 0.78 0.89
Adjusted total asset turnover 0.99 0.99 1.08 1.15 1.23
Financial Leverage
Reported financial leverage 3.18 3.44 2.80 2.70 2.57
Adjusted financial leverage 16.03 21.92 14.00 6.71
Return on Equity (ROE)
Reported ROE 37.21% 9.58% 24.83% 26.08% 24.01%
Adjusted ROE 256.83% 289.35% 199.66% 87.06%
Return on Assets (ROA)
Reported ROA 11.71% 2.79% 8.88% 9.67% 9.33%
Adjusted ROA 16.02% 4.03% 13.20% 14.27% 12.98%

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Honeywell International Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then slightly improved 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.
Honeywell International Inc.’s adjusted financial leverage declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Honeywell International Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Honeywell International Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Honeywell International Inc., Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net sales 41,802  40,534  39,302  38,581  40,306 
Total assets 57,773  59,387  54,146  49,316  45,451 
Ratio
Total asset turnover1 0.72 0.68 0.73 0.78 0.89
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net sales 41,802  40,534  39,302  38,581  40,306 
Adjusted total assets 42,227  41,110  36,439  33,421  32,663 
Ratio
Adjusted total asset turnover2 0.99 0.99 1.08 1.15 1.23

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= 41,802 ÷ 57,773 = 0.72

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 41,802 ÷ 42,227 = 0.99

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Honeywell International Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Total assets 57,773  59,387  54,146  49,316  45,451 
Total Honeywell shareowners’ equity 18,180  17,276  19,369  18,283  17,657 
Ratio
Financial leverage1 3.18 3.44 2.80 2.70 2.57
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted total assets 42,227  41,110  36,439  33,421  32,663 
Adjusted total Honeywell shareowners’ equity 2,634  (1,001) 1,662  2,388  4,869 
Ratio
Adjusted financial leverage2 16.03 21.92 14.00 6.71

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Financial leverage = Total assets ÷ Total Honeywell shareowners’ equity
= 57,773 ÷ 18,180 = 3.18

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Honeywell shareowners’ equity
= 42,227 ÷ 2,634 = 16.03

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.
Honeywell International Inc.’s adjusted financial leverage declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to Honeywell 6,765  1,655  4,809  4,768  4,239 
Total Honeywell shareowners’ equity 18,180  17,276  19,369  18,283  17,657 
Ratio
ROE1 37.21% 9.58% 24.83% 26.08% 24.01%
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income attributable to Honeywell 6,765  1,655  4,809  4,768  4,239 
Adjusted total Honeywell shareowners’ equity 2,634  (1,001) 1,662  2,388  4,869 
Ratio
Adjusted ROE2 256.83% 289.35% 199.66% 87.06%

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 ROE = 100 × Net income attributable to Honeywell ÷ Total Honeywell shareowners’ equity
= 100 × 6,765 ÷ 18,180 = 37.21%

2 Adjusted ROE = 100 × Net income attributable to Honeywell ÷ Adjusted total Honeywell shareowners’ equity
= 100 × 6,765 ÷ 2,634 = 256.83%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Honeywell International Inc.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to Honeywell 6,765  1,655  4,809  4,768  4,239 
Total assets 57,773  59,387  54,146  49,316  45,451 
Ratio
ROA1 11.71% 2.79% 8.88% 9.67% 9.33%
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income attributable to Honeywell 6,765  1,655  4,809  4,768  4,239 
Adjusted total assets 42,227  41,110  36,439  33,421  32,663 
Ratio
Adjusted ROA2 16.02% 4.03% 13.20% 14.27% 12.98%

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 ROA = 100 × Net income attributable to Honeywell ÷ Total assets
= 100 × 6,765 ÷ 57,773 = 11.71%

2 Adjusted ROA = 100 × Net income attributable to Honeywell ÷ Adjusted total assets
= 100 × 6,765 ÷ 42,227 = 16.02%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Honeywell International Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.