Illinois Tool Works Inc. (NYSE:ITW)

Goodwill

The goodwill value shows a fluctuating trend, starting at 4,752 million USD in 2017, then decreasing each year to reach its lowest point of 4,492 million USD in 2019. It recovers thereafter, increasing to 4,690 million USD in 2020 and further to 4,965 million USD by 2021, indicating renewed acquisitions or reassessments in the later years.

Customer lists and relationships

This intangible asset category experiences a decline from 1,753 million USD in 2017 down to 1,530 million USD by 2019, followed by a recovery trend, rising to 1,849 million USD in 2021. This suggests potential divestitures or amortization impacts early on, with subsequent investments or revaluations increasing the asset value later.

Trademarks and brands (cost basis)

Values remain relatively stable between 2017 and 2021, with minor decreases from 761 million USD to 732 million USD, except for a slight dip in 2019. The overall stability signals limited new trademark acquisitions or disposals during this period.

Patents and proprietary technology

This asset shows a gradual decline from 623 million USD in 2017 to 581 million USD in 2019, followed by moderate increases, reaching 640 million USD in 2021. The fluctuation may reflect cyclical investments in intellectual property development or expirations of patent rights.

Other intangible assets

The other intangible assets category maintains a steady upward trajectory from 474 million USD to 533 million USD over the five years, indicating gradual additions or lesser amortization relative to cost additions.

Amortizable intangible assets, cost

The amortizable intangible assets’ cost exhibits a declining trend from 3,611 million USD in 2017 to 3,254 million USD in 2019, followed by a recovery to 3,754 million USD in 2021. This pattern points to asset disposals or impairment early on, with later increase possibly due to new intangible asset acquisitions or capitalization.

Accumulated amortization

Accumulated amortization consistently increases in magnitude (i.e., becomes more negative) each year, starting at -2,499 million USD in 2017 and reaching -3,035 million USD by 2021. This steady increase reflects ongoing amortization expense associated with amortizable intangible assets, contributing to the reduction of net asset values.

Amortizable intangible assets, net

The net amortizable intangible assets, after amortization deduction, decline notably from 1,112 million USD in 2017 to 691 million USD in 2019, and then slightly improve to 719 million USD in 2021. This suggests that the amortization charges and downward adjustments outpaced additions during the early years, with some stabilization more recently.

Indefinite-lived intangible assets

These assets remain constant at 160 million USD from 2017 through 2020 and increase significantly to 253 million USD in 2021. This rise indicates either new indefinite-lived asset recognition or acquisitions towards the end of the period.

Intangible assets (total)

Total intangible assets show a downward trend from 1,272 million USD in 2017 to a low of 781 million USD in 2020, followed by a recovery to 972 million USD in 2021. The pattern aligns with fluctuations in amortizable and indefinite-lived assets observed previously.

Goodwill and intangible assets (combined)

The combined value of goodwill and intangible assets declines from 6,024 million USD in 2017 to 5,343 million USD by 2019, then increases steadily to 5,937 million USD in 2021. This trend reflects the interplay of asset impairments or amortizations, divestitures, and subsequent acquisitions or revaluations in the latter years.

Total Assets

The reported total assets show a declining trend from 2017 to 2018, decreasing from $16,780 million to $14,870 million. This is followed by a gradual recovery in subsequent years, reaching $16,077 million by the end of 2021. In contrast, the adjusted total assets, which exclude goodwill, consistently decrease over the entire period from $12,028 million in 2017 to $11,112 million in 2021, indicating a steady reduction in the asset base when goodwill is factored out.

Stockholders’ Equity

The reported stockholders’ equity attributable to the company exhibits a significant decline from $4,585 million in 2017 to $3,026 million by 2019, followed by a modest recovery to $3,625 million in 2021. Conversely, the adjusted stockholders’ equity, which accounts for goodwill adjustments, remains negative across all years, starting at -$167 million in 2017 and deteriorating further to approximately -$1,340 million in 2021. This persistent negative adjusted equity suggests that goodwill and other intangible assets considerably inflate the reported equity figures.

Overall Analysis

The data indicates a divergence between reported and adjusted financial measures. While reported total assets and equity show signs of recovery and positive balance, the adjusted figures reveal ongoing asset base contraction and sustained negative equity values. This discrepancy highlights the material impact of goodwill and intangibles on the company's reported financial position, potentially masking underlying declines in the tangible asset base and shareholder equity.

Total Asset Turnover

The reported total asset turnover ratio experienced fluctuations over the five-year period. Starting at 0.85 in 2017, it increased to a peak of 0.99 in 2018, then slightly declined to 0.94 in 2019, followed by a more noticeable drop to 0.81 in 2020. It showed recovery in 2021, reaching 0.9. The adjusted total asset turnover consistently remained higher than the reported figures, beginning at 1.19 in 2017 and peaking at 1.44 in 2018. Subsequently, it trended downward to 1.33 in 2019 and 1.15 in 2020 before rebounding to 1.3 in 2021. Overall, both reported and adjusted figures indicate variability with a strong recovery after the 2020 decline.

Financial Leverage

The reported financial leverage increased significantly from 3.66 in 2017 to 4.57 in 2018, and further climbed to 4.98 in 2019, indicating increasing reliance on debt or liabilities relative to equity. This figure slightly decreased to 4.91 in 2020 and then more noticeably dropped to 4.44 in 2021. No adjusted financial leverage data is provided for analysis. The overall trend suggests a peak in leverage in 2019 followed by a de-leveraging phase through 2021.

Return on Equity (ROE)

Reported ROE showed significant volatility over the period. It started at 36.79% in 2017, more than doubled to 78.76% in 2018, and further increased to 83.31% in 2019. A notable decline occurred in 2020, dropping to 66.3%, before rebounding to 74.32% in 2021. Despite fluctuations, ROE remained at elevated levels compared to 2017, signifying strong profitability for shareholders through most of the period. Adjusted ROE data is not available.

Return on Assets (ROA)

The reported ROA rose from 10.05% in 2017 to a peak of 17.24% in 2018, then slightly decreased to 16.73% in 2019. The lowest point occurred in 2020 at 13.51%, followed by a recovery to 16.76% in 2021. The adjusted ROA consistently exceeded the reported values, starting at 14.03% in 2017 and peaking at 25.04% in 2018. It also declined over the next two years to 23.84% in 2019 and 19.31% in 2020, and then improved to 24.24% in 2021. This pattern reflects a temporary performance dip in 2020 with improvement thereafter, and the adjustment likely indicates the impact of removing goodwill from asset figures, resulting in higher returns based on net assets.

The financial data indicates distinct trends in both reported and goodwill adjusted metrics over the five-year period ending December 31, 2021.

Assets

The reported total assets demonstrate a declining trend from 2017 to 2018, dropping from 16,780 million US dollars to 14,870 million US dollars. Thereafter, the assets show a modest increase each year, reaching 16,077 million US dollars by the end of 2021. The adjusted total assets, which presumably exclude goodwill, exhibit a parallel pattern but at lower absolute values. These adjusted assets decline from 12,028 million US dollars in 2017 to 10,237 million US dollars in 2018, followed by a gradual rise to 11,112 million US dollars by 2021. The narrower fluctuations in the adjusted values suggest some variability in goodwill or other intangible assets over time.

Asset Turnover Ratios

Regarding asset efficiency, the reported total asset turnover ratio increases significantly from 0.85 in 2017 to 0.99 in 2018, indicating improved efficiency in generating revenue from reported assets. However, it declines to 0.81 by 2020 before recovering moderately to 0.90 in 2021. In contrast, the adjusted total asset turnover ratio consistently remains higher than the reported ratio, starting at 1.19 in 2017 and peaking at 1.44 in 2018. Following a mild downward trend, the adjusted turnover ratio holds at 1.15 in 2020 and improves again to 1.30 in 2021. This pattern suggests that excluding goodwill adjustment results in a more favorable assessment of asset efficiency.

Overall Insights

The initial drop in asset base in 2018 may indicate disposals, impairment, or revaluation of assets, potentially including goodwill adjustments. Both total assets and turnover ratios recover gradually after this point, reflecting stabilization and improved operational effectiveness. The consistently higher asset turnover ratios when adjusted for goodwill imply that goodwill constitutes a significant portion of assets but may not be as effective in generating revenue. The data signals cautious asset management and a positive trajectory in asset utilization efficiency over the latest years.

The data reveals several key trends related to the reported and goodwill adjusted financial figures over the five-year period ending December 31, 2021. Total assets reported show a declining trend from 2017 to 2018, followed by a relatively modest recovery through 2021. Adjusted total assets, which likely exclude goodwill or intangible assets, follow a similar pattern with a decline between 2017 and 2018, with slight incremental increases in subsequent years. This may indicate efforts to reduce or stabilize asset holdings net of goodwill over the period.

Reported stockholders’ equity attributable to the company undergoes a notable decline between 2017 and 2019, dropping nearly one-third from 4,585 million USD to 3,026 million USD, before moderately increasing through 2021. In contrast, the adjusted stockholders’ equity attributable to the company remains negative throughout the entire period, ranging from -167 million USD in 2017 to a low of -1,509 million USD in 2020, with a slight improvement in 2021. This persistent negative adjusted equity signals that once goodwill and other adjustments are factored in, the company’s net assets may be significantly impaired or heavily affected by intangible write-downs or liabilities.

Financial leverage, calculated as the ratio of total assets to stockholders’ equity, reveals an increase in reliance on debt or liabilities relative to equity. Reported financial leverage rises sharply from 3.66 in 2017 to a peak of 4.98 in 2019, before declining slightly to 4.44 by 2021. This indicates a period of increased financial risk or capital structure leveraging that slightly ameliorates by the end of the period. There is no data provided for adjusted financial leverage, which might have offered further insights into leverage effects after excluding goodwill.

Overall, the patterns suggest a company managing a reduction in goodwill or intangible assets impact over time, facing challenges in maintaining positive adjusted equity, and displaying elevated but variable financial leverage. The slight recovery in reported equity and total assets toward the latter years may reflect efforts to strengthen the balance sheet after a period of adjustment or restructuring. However, the persistent negative adjusted equity status points to ongoing concerns regarding asset quality or intangible impairments not fully resolved by 2021.

Total Assets

Reported assets declined sharply in 2018 but gradually recovered through 2021, whereas adjusted total assets show a similar decline and slower recovery trend.

Stockholders’ Equity

Reported equity declined markedly until 2019 but began to improve afterward; adjusted equity remained negative throughout, indicating potential asset impairments.

Financial Leverage

Leverage increased significantly until 2019, suggesting heightened financial risk, and then decreased moderately by 2021.

Implications

The data reflects a company undergoing balance sheet adjustments that affect net asset values and financial risk profiles, with ongoing challenges related to goodwill or intangible asset impacts.

Stockholders’ Equity Attributable to ITW

The reported stockholders’ equity showed a declining trend from US$4,585 million in 2017 to US$3,026 million in 2019. This decline appears to reverse slightly in 2020 and 2021, reaching US$3,625 million. In contrast, the adjusted stockholders’ equity, which presumably accounts for goodwill impacts, remained negative throughout the entire period, with values deepening from -US$167 million in 2017 to approximately -US$1,500 million in 2020, before improving marginally to -US$1,340 million in 2021.

Return on Equity (ROE)

The reported ROE values exhibit significant volatility, with a peak of 83.31% in 2019 after increasing from 36.79% in 2017 and 78.76% in 2018. A decline was observed in 2020 to 66.3%, followed by a partial recovery to 74.32% in 2021. The adjusted ROE data is missing for all years, indicating that an equity adjustment related to goodwill has not been translated into ROE calculations, possibly limiting the assessment of performance consistency on an adjusted basis.

Summary Observations

The reported equity values and ROE suggest strong underlying profitability, although equity has contracted somewhat over the initial years before stabilizing. The consistently negative adjusted equity indicates significant goodwill deductions that materially affect the equity base, potentially overstating reported equity and inflating ROE metrics. The absence of adjusted ROE figures limits the ability to fully evaluate the impact of goodwill adjustments on profitability ratios. Overall, the company demonstrates resilient profitability metrics despite downward pressure on equity when adjusted for goodwill.

Total Assets

The reported total assets show a declining trend from 2017 to 2018, decreasing from 16,780 million US dollars to 14,870 million US dollars. Subsequently, assets increased gradually through 2021, reaching 16,077 million US dollars. The adjusted total assets, which exclude goodwill, follow a similar pattern but at lower absolute values, starting at 12,028 million US dollars in 2017 and decreasing to 10,237 million US dollars in 2018. Thereafter, adjusted assets have increased steadily each year, reaching 11,112 million US dollars in 2021. This indicates a consistent recovery and growth in asset base after the initial decline in 2018, with a notable difference between reported and adjusted values pointing to the presence and impact of goodwill on the balance sheet.

Return on Assets (ROA)

The reported ROA increased significantly from 10.05% in 2017 to 17.24% in 2018, then remained relatively stable through 2019 at 16.73%. However, it declined to 13.51% in 2020 before recovering to 16.76% in 2021. The adjusted ROA, which excludes the impact of goodwill, shows a similar but more pronounced trend, increasing sharply from 14.03% in 2017 to 25.04% in 2018 and remaining above 19% in all subsequent years. It experienced a dip in 2020 to 19.31% but then rose again to 24.24% in 2021. The consistently higher adjusted ROA compared to the reported ROA suggests that goodwill adjustments reveal stronger operational efficiency and asset utilization than the reported figures indicate.

Overall Analysis

The data reveal an initial contraction in asset base in 2018 followed by a steady recovery. The adjustment for goodwill significantly affects both the asset base and the calculated ROA, highlighting its material impact on the financial metrics. The return on assets demonstrates resilience, with improvements after a dip in 2020, likely reflecting operational adjustments or market conditions during that period. The higher adjusted ROA values signal better profitability and asset efficiency once intangible asset impacts are excluded.