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Johnson & Johnson (JNJ)
Analysis of Goodwill and Intangible Assets
High level of difficulty
- Goodwill and Intangible Assets Accounting Policy
- Goodwill and Intangible Assets Disclosure
- Adjustments to Financial Statements: Removal of Goodwill
- Adjusted Financial Ratios: Removal of Goodwill (Summary)
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Goodwill and Intangible Assets Accounting Policy
The authoritative literature on U.S. GAAP requires that goodwill and intangible assets with indefinite lives be assessed annually for impairment. Johnson & Johnson completed the annual impairment test for 2018 in the fiscal fourth quarter. Future impairment tests will be performed annually in the fiscal fourth quarter, or sooner if warranted. Purchased in-process research and development is accounted for as an indefinite lived intangible asset until the underlying project is completed, at which point the intangible asset will be accounted for as a definite lived intangible asset, or abandoned, at which point the intangible asset will be written off or partially impaired.
Intangible assets that have finite useful lives continue to be amortized over their useful lives, and are reviewed for impairment when warranted by economic conditions.
Source: 10-K (filing date: 2019-02-20).
Goodwill and Intangible Assets Disclosure
Johnson & Johnson, balance sheet: goodwill and intangible assets
US$ in millions
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).
| Item | Description | The company |
|---|---|---|
| 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. | Johnson & Johnson’s intangible assets, net increased from 2016 to 2017 but then slightly declined 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. | Johnson & Johnson’s goodwill increased from 2016 to 2017 but then slightly declined from 2017 to 2018. |
| Intangible assets and goodwill | Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. | Johnson & Johnson’s intangible assets and goodwill increased from 2016 to 2017 but then slightly declined from 2017 to 2018. |
Adjustments to Financial Statements: Removal of Goodwill
Johnson & Johnson, adjustments to financial statements
US$ in millions
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).
Johnson & Johnson, Financial Data: Reported vs. Adjusted
Adjusted Financial Ratios: Removal of Goodwill (Summary)
Johnson & Johnson, adjusted financial ratios
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).
| Financial ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Johnson & Johnson’s adjusted total asset turnover ratio improved from 2016 to 2017 and 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. |
Johnson & Johnson’s adjusted financial leverage ratio increased from 2016 to 2017 but then slightly declined from 2017 to 2018. |
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Johnson & Johnson’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 net income divided by adjusted total assets. | Johnson & Johnson’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level. |
Johnson & Johnson, Financial Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).
2018 Calculations
1 Total asset turnover = Sales to customers ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Sales to customers ÷ Adjusted total assets
= ÷ =
| Activity ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Johnson & Johnson’s adjusted total asset turnover ratio improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).
2018 Calculations
1 Financial leverage = Total assets ÷ Shareholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= ÷ =
| 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. |
Johnson & Johnson’s adjusted financial leverage ratio increased from 2016 to 2017 but then slightly declined from 2017 to 2018. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).
2018 Calculations
1 ROE = 100 × Net earnings ÷ Shareholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Net earnings ÷ Adjusted shareholders’ equity
= 100 × ÷ =
| Profitability ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Johnson & Johnson’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-21), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-24).
2018 Calculations
1 ROA = 100 × Net earnings ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Net earnings ÷ Adjusted total assets
= 100 × ÷ =
| Profitability ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Johnson & Johnson’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level. |