Inventory Disclosure
Adjustment to Inventory: Conversion from LIFO to FIFO
Adjusted Financial Ratios: LIFO vs. FIFO (Summary)
Adjusted Current Ratio
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Illinois Tool Works Inc., balance sheet: inventory

US$ in millions

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Raw material	716)	454)	452)	523)	465)
Work-in-process	208)	136)	131)	161)	141)
Finished goods	888)	681)	670)	731)	703)
LIFO reserve	(118)	(82)	(89)	(97)	(89)
Inventories	1,694)	1,189)	1,164)	1,318)	1,220)

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

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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.	Illinois Tool Works Inc. inventories increased from 2019 to 2020 and from 2020 to 2021.

Adjusting LIFO Inventory to FIFO (Current) Cost

US$ in millions

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Adjustment to Inventories
Inventories at LIFO (as reported)	1,694)	1,189)	1,164)	1,318)	1,220)
Add: Inventory LIFO reserve	118)	82)	89)	97)	89)
Inventories at FIFO (adjusted)	1,812)	1,271)	1,253)	1,415)	1,309)
Adjustment to Current Assets
Current assets (as reported)	6,374)	6,523)	6,253)	5,778)	7,278)
Add: Inventory LIFO reserve	118)	82)	89)	97)	89)
Current assets (adjusted)	6,492)	6,605)	6,342)	5,875)	7,367)
Adjustment to Total Assets
Total assets (as reported)	16,077)	15,612)	15,068)	14,870)	16,780)
Add: Inventory LIFO reserve	118)	82)	89)	97)	89)
Total assets (adjusted)	16,195)	15,694)	15,157)	14,967)	16,869)
Adjustment to Stockholders’ Equity Attributable To ITW
Stockholders’ equity attributable to ITW (as reported)	3,625)	3,181)	3,026)	3,254)	4,585)
Add: Inventory LIFO reserve	118)	82)	89)	97)	89)
Stockholders’ equity attributable to ITW (adjusted)	3,743)	3,263)	3,115)	3,351)	4,674)
Adjustment to Net Income
Net income (as reported)	2,694)	2,109)	2,521)	2,563)	1,687)
Add: Increase (decrease) in inventory LIFO reserve	36)	(7)	(8)	8)	3)
Net income (adjusted)	2,730)	2,102)	2,513)	2,571)	1,690)

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

Illinois Tool Works Inc. inventory value on Dec 31, 2021 would be $1,812) (in millions) if the FIFO inventory method was used instead of LIFO. Illinois Tool Works Inc. inventories, valued on a LIFO basis, on Dec 31, 2021 were $1,694). Illinois Tool Works Inc. inventories would have been $118) higher than reported on Dec 31, 2021 if the FIFO method had been used instead.

Illinois Tool Works Inc., Financial Data: Reported vs. Adjusted

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Illinois Tool Works Inc., adjusted financial ratios

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
Current Ratio
Reported current ratio (LIFO)	1.84	2.52	2.90	1.63	2.38
Adjusted current ratio (FIFO)	1.87	2.55	2.94	1.66	2.41
Net Profit Margin
Reported net profit margin (LIFO)	18.64%	16.77%	17.87%	17.36%	11.79%
Adjusted net profit margin (FIFO)	18.89%	16.72%	17.81%	17.41%	11.81%
Total Asset Turnover
Reported total asset turnover (LIFO)	0.90	0.81	0.94	0.99	0.85
Adjusted total asset turnover (FIFO)	0.89	0.80	0.93	0.99	0.85
Financial Leverage
Reported financial leverage (LIFO)	4.44	4.91	4.98	4.57	3.66
Adjusted financial leverage (FIFO)	4.33	4.81	4.87	4.47	3.61
Return on Equity (ROE)
Reported ROE (LIFO)	74.32%	66.30%	83.31%	78.76%	36.79%
Adjusted ROE (FIFO)	72.94%	64.42%	80.67%	76.72%	36.16%
Return on Assets (ROA)
Reported ROA (LIFO)	16.76%	13.51%	16.73%	17.24%	10.05%
Adjusted ROA (FIFO)	16.86%	13.39%	16.58%	17.18%	10.02%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

Financial ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by current liabilities.	Illinois Tool Works Inc. adjusted current ratio deteriorated from 2019 to 2020 and from 2020 to 2021.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Illinois Tool Works Inc. adjusted net profit margin ratio deteriorated from 2019 to 2020 but then improved from 2020 to 2021 exceeding 2019 level.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Illinois Tool Works Inc. adjusted total asset turnover ratio deteriorated from 2019 to 2020 but then improved from 2020 to 2021 not reaching 2019 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.	Illinois Tool Works Inc. adjusted financial leverage ratio decreased from 2019 to 2020 and from 2020 to 2021.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Illinois Tool Works Inc. adjusted ROE deteriorated from 2019 to 2020 but then improved from 2020 to 2021 not reaching 2019 level.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Illinois Tool Works Inc. adjusted ROA deteriorated from 2019 to 2020 but then improved from 2020 to 2021 exceeding 2019 level.

Illinois Tool Works Inc., Financial Ratios: Reported vs. Adjusted

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	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
As Reported
Selected Financial Data (US$ in millions)
Current assets	6,374)	6,523)	6,253)	5,778)	7,278)
Current liabilities	3,470)	2,589)	2,154)	3,542)	3,053)
Liquidity Ratio
Current ratio¹	1.84	2.52	2.90	1.63	2.38
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted current assets	6,492)	6,605)	6,342)	5,875)	7,367)
Current liabilities	3,470)	2,589)	2,154)	3,542)	3,053)
Liquidity Ratio
Adjusted current ratio²	1.87	2.55	2.94	1.66	2.41

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 6,374 ÷ 3,470 = 1.84

² Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 6,492 ÷ 3,470 = 1.87

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Liquidity ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by current liabilities.	Illinois Tool Works Inc. adjusted current ratio deteriorated from 2019 to 2020 and from 2020 to 2021.

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
As Reported
Selected Financial Data (US$ in millions)
Net income	2,694)	2,109)	2,521)	2,563)	1,687)
Operating revenue	14,455)	12,574)	14,109)	14,768)	14,314)
Profitability Ratio
Net profit margin¹	18.64%	16.77%	17.87%	17.36%	11.79%
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted net income	2,730)	2,102)	2,513)	2,571)	1,690)
Operating revenue	14,455)	12,574)	14,109)	14,768)	14,314)
Profitability Ratio
Adjusted net profit margin²	18.89%	16.72%	17.81%	17.41%	11.81%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

¹ Net profit margin = 100 × Net income ÷ Operating revenue
= 100 × 2,694 ÷ 14,455 = 18.64%

² Adjusted net profit margin = 100 × Adjusted net income ÷ Operating revenue
= 100 × 2,730 ÷ 14,455 = 18.89%

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Profitability ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Illinois Tool Works Inc. adjusted net profit margin ratio deteriorated from 2019 to 2020 but then improved from 2020 to 2021 exceeding 2019 level.

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
As Reported
Selected Financial Data (US$ in millions)
Operating revenue	14,455)	12,574)	14,109)	14,768)	14,314)
Total assets	16,077)	15,612)	15,068)	14,870)	16,780)
Activity Ratio
Total asset turnover¹	0.90	0.81	0.94	0.99	0.85
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Operating revenue	14,455)	12,574)	14,109)	14,768)	14,314)
Adjusted total assets	16,195)	15,694)	15,157)	14,967)	16,869)
Activity Ratio
Adjusted total asset turnover²	0.89	0.80	0.93	0.99	0.85

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

¹ Total asset turnover = Operating revenue ÷ Total assets
= 14,455 ÷ 16,077 = 0.90

² Adjusted total asset turnover = Operating revenue ÷ Adjusted total assets
= 14,455 ÷ 16,195 = 0.89

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Activity ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Illinois Tool Works Inc. adjusted total asset turnover ratio deteriorated from 2019 to 2020 but then improved from 2020 to 2021 not reaching 2019 level.

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
As Reported
Selected Financial Data (US$ in millions)
Total assets	16,077)	15,612)	15,068)	14,870)	16,780)
Stockholders’ equity attributable to ITW	3,625)	3,181)	3,026)	3,254)	4,585)
Solvency Ratio
Financial leverage¹	4.44	4.91	4.98	4.57	3.66
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted total assets	16,195)	15,694)	15,157)	14,967)	16,869)
Adjusted stockholders’ equity attributable to ITW	3,743)	3,263)	3,115)	3,351)	4,674)
Solvency Ratio
Adjusted financial leverage²	4.33	4.81	4.87	4.47	3.61

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

¹ Financial leverage = Total assets ÷ Stockholders’ equity attributable to ITW
= 16,077 ÷ 3,625 = 4.44

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity attributable to ITW
= 16,195 ÷ 3,743 = 4.33

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Solvency 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.	Illinois Tool Works Inc. adjusted financial leverage ratio decreased from 2019 to 2020 and from 2020 to 2021.

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
As Reported
Selected Financial Data (US$ in millions)
Net income	2,694)	2,109)	2,521)	2,563)	1,687)
Stockholders’ equity attributable to ITW	3,625)	3,181)	3,026)	3,254)	4,585)
Profitability Ratio
ROE¹	74.32%	66.30%	83.31%	78.76%	36.79%
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted net income	2,730)	2,102)	2,513)	2,571)	1,690)
Adjusted stockholders’ equity attributable to ITW	3,743)	3,263)	3,115)	3,351)	4,674)
Profitability Ratio
Adjusted ROE²	72.94%	64.42%	80.67%	76.72%	36.16%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

¹ ROE = 100 × Net income ÷ Stockholders’ equity attributable to ITW
= 100 × 2,694 ÷ 3,625 = 74.32%

² Adjusted ROE = 100 × Adjusted net income ÷ Adjusted stockholders’ equity attributable to ITW
= 100 × 2,730 ÷ 3,743 = 72.94%

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Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Illinois Tool Works Inc. adjusted ROE deteriorated from 2019 to 2020 but then improved from 2020 to 2021 not reaching 2019 level.

	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017
As Reported
Selected Financial Data (US$ in millions)
Net income	2,694)	2,109)	2,521)	2,563)	1,687)
Total assets	16,077)	15,612)	15,068)	14,870)	16,780)
Profitability Ratio
ROA¹	16.76%	13.51%	16.73%	17.24%	10.05%
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted net income	2,730)	2,102)	2,513)	2,571)	1,690)
Adjusted total assets	16,195)	15,694)	15,157)	14,967)	16,869)
Profitability Ratio
Adjusted ROA²	16.86%	13.39%	16.58%	17.18%	10.02%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

¹ ROA = 100 × Net income ÷ Total assets
= 100 × 2,694 ÷ 16,077 = 16.76%

² Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × 2,730 ÷ 16,195 = 16.86%

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Profitability ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Illinois Tool Works Inc. adjusted ROA deteriorated from 2019 to 2020 but then improved from 2020 to 2021 exceeding 2019 level.

Illinois Tool Works Inc. (NYSE:ITW)

Analysis of Inventory

Inventory Disclosure

Adjustment to Inventory: Conversion from LIFO to FIFO

Illinois Tool Works Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: LIFO vs. FIFO (Summary)

Illinois Tool Works Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Current Ratio

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)