Microsoft Excel LibreOffice Calc

Analysis of Inventory

Difficulty: Advanced


Inventory Disclosure

Honeywell International Inc., Statement of Financial Position, Inventory

USD $ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Raw materials 1,109  1,193  1,104  1,120  1,124 
Work in process 811  790  775  826  815 
Finished products 2,445  2,669  2,552  2,590  2,634 
Inventories valued at current costs 4,365  4,652  4,431  4,536  4,573 
Reduction to LIFO cost basis (39) (39) (65) (116) (168)
Inventories 4,326  4,613  4,366  4,420  4,405 

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
Inventories Amount after valuation and LIFO reserves of inventory expected to be sold, or consumed within one year or operating cycle, if longer. Honeywell International Inc.’s inventories increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Adjustment to Inventory: from LIFO to FIFO

Adjusting LIFO Inventory to FIFO (Current) Cost

USD $ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Inventories
Inventories at LIFO (as reported) 4,326  4,613  4,366  4,420  4,405 
Add: Inventory LIFO reserve 39  39  65  116  168 
Inventories at FIFO (adjusted) 4,365  4,652  4,431  4,536  4,573 
Adjustment to Current Assets
Current assets (as reported) 24,362  26,002  23,058  20,053  22,191 
Add: Inventory LIFO reserve 39  39  65  116  168 
Current assets (adjusted) 24,401  26,041  23,123  20,169  22,359 
Adjustment to Total Assets
Total assets (as reported) 57,773  59,387  54,146  49,316  45,451 
Add: Inventory LIFO reserve 39  39  65  116  168 
Total assets (adjusted) 57,812  59,426  54,211  49,432  45,619 
Adjustment to Total Honeywell Shareowners’ Equity
Total Honeywell shareowners’ equity (as reported) 18,180  17,276  19,369  18,283  17,657 
Add: Inventory LIFO reserve 39  39  65  116  168 
Total Honeywell shareowners’ equity (adjusted) 18,219  17,315  19,434  18,399  17,825 
Adjustment to Net Income Attributable To Honeywell
Net income attributable to Honeywell (as reported) 6,765  1,655  4,809  4,768  4,239 
Add: Increase (decrease) in inventory LIFO reserve –  (26) (51) (52)
Net income attributable to Honeywell (adjusted) 6,765  1,629  4,758  4,716  4,241 

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.’s inventory value on Dec 31, 2018 would be $4,365  (in millions) if the FIFO inventory method was used instead of LIFO. Honeywell International Inc.’s inventories, valued on a LIFO basis, on Dec 31, 2018 were $4,326 . Honeywell International Inc.’s inventories would have been $39  higher than reported on Dec 31, 2018 if the FIFO method had been used instead.


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


Adjusted Ratios: LIFO vs. FIFO (Summary)

Honeywell International Inc., adjusted ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Current Ratio
Reported current ratio (LIFO) 1.29 1.38 1.41 1.09 1.50
Adjusted current ratio (FIFO) 1.29 1.38 1.42 1.10 1.51
Net Profit Margin
Reported net profit margin (LIFO) 16.18% 4.08% 12.24% 12.36% 10.52%
Adjusted net profit margin (FIFO) 16.18% 4.02% 12.11% 12.22% 10.52%
Total Asset Turnover
Reported total asset turnover (LIFO) 0.72 0.68 0.73 0.78 0.89
Adjusted total asset turnover (FIFO) 0.72 0.68 0.72 0.78 0.88
Financial Leverage
Reported financial leverage (LIFO) 3.18 3.44 2.80 2.70 2.57
Adjusted financial leverage (FIFO) 3.17 3.43 2.79 2.69 2.56
Return on Equity (ROE)
Reported ROE (LIFO) 37.21% 9.58% 24.83% 26.08% 24.01%
Adjusted ROE (FIFO) 37.13% 9.41% 24.48% 25.63% 23.79%
Return on Assets (ROA)
Reported ROA (LIFO) 11.71% 2.79% 8.88% 9.67% 9.33%
Adjusted ROA (FIFO) 11.70% 2.74% 8.78% 9.54% 9.30%

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 current ratio A liquidity ratio calculated as adjusted current assets divided by current liabilities. Honeywell International Inc.’s adjusted current ratio deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Honeywell International Inc.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
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 improved from 2017 to 2018 not reaching 2016 level.
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 increased from 2016 to 2017 but then slightly declined from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted 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 exceeding 2016 level.
Adjusted ROA A profitability ratio calculated as adjusted 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 Current Ratio

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)
Current assets 24,362  26,002  23,058  20,053  22,191 
Current liabilities 18,924  18,861  16,331  18,371  14,773 
Ratio
Current ratio1 1.29 1.38 1.41 1.09 1.50
Adjusted: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Adjusted current assets 24,401  26,041  23,123  20,169  22,359 
Current liabilities 18,924  18,861  16,331  18,371  14,773 
Ratio
Adjusted current ratio2 1.29 1.38 1.42 1.10 1.51

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 Current ratio = Current assets ÷ Current liabilities
= 24,362 ÷ 18,924 = 1.29

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 24,401 ÷ 18,924 = 1.29

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by current liabilities. Honeywell International Inc.’s adjusted current ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Net Profit Margin

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 
Net sales 41,802  40,534  39,302  38,581  40,306 
Ratio
Net profit margin1 16.18% 4.08% 12.24% 12.36% 10.52%
Adjusted: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to Honeywell 6,765  1,629  4,758  4,716  4,241 
Net sales 41,802  40,534  39,302  38,581  40,306 
Ratio
Adjusted net profit margin2 16.18% 4.02% 12.11% 12.22% 10.52%

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 Net profit margin = 100 × Net income attributable to Honeywell ÷ Net sales
= 100 × 6,765 ÷ 41,802 = 16.18%

2 Adjusted net profit margin = 100 × Adjusted net income attributable to Honeywell ÷ Net sales
= 100 × 6,765 ÷ 41,802 = 16.18%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. Honeywell International Inc.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

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: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Net sales 41,802  40,534  39,302  38,581  40,306 
Adjusted total assets 57,812  59,426  54,211  49,432  45,619 
Ratio
Adjusted total asset turnover2 0.72 0.68 0.72 0.78 0.88

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 ÷ 57,812 = 0.72

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 improved from 2017 to 2018 not reaching 2016 level.

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: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Adjusted total assets 57,812  59,426  54,211  49,432  45,619 
Adjusted total Honeywell shareowners’ equity 18,219  17,315  19,434  18,399  17,825 
Ratio
Adjusted financial leverage2 3.17 3.43 2.79 2.69 2.56

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
= 57,812 ÷ 18,219 = 3.17

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 increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

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: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to Honeywell 6,765  1,629  4,758  4,716  4,241 
Adjusted total Honeywell shareowners’ equity 18,219  17,315  19,434  18,399  17,825 
Ratio
Adjusted ROE2 37.13% 9.41% 24.48% 25.63% 23.79%

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 × Adjusted net income attributable to Honeywell ÷ Adjusted total Honeywell shareowners’ equity
= 100 × 6,765 ÷ 18,219 = 37.13%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted 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 exceeding 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: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to Honeywell 6,765  1,629  4,758  4,716  4,241 
Adjusted total assets 57,812  59,426  54,211  49,432  45,619 
Ratio
Adjusted ROA2 11.70% 2.74% 8.78% 9.54% 9.30%

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 × Adjusted net income attributable to Honeywell ÷ Adjusted total assets
= 100 × 6,765 ÷ 57,812 = 11.70%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted 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.