McKesson Corp. (NYSE:MCK)

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McKesson Corp., Financial Data: Reported vs. Adjusted

Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

McKesson Corp., adjustments to financial statements

US$ in millions

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
Adjustment to Total Assets
Total assets (as reported)	56,563)	53,870)	51,759)	34,786)	33,093)	30,886)
Less: Goodwill	9,786)	9,817)	9,927)	6,405)	5,032)	4,364)
Total assets (adjusted)	46,777)	44,053)	41,832)	28,381)	28,061)	26,522)
Adjustment to Total McKesson Corporation Stockholders’ Equity
Total McKesson Corporation stockholders’ equity (as reported)	8,924)	8,001)	8,522)	7,070)	6,831)	7,220)
Less: Goodwill	9,786)	9,817)	9,927)	6,405)	5,032)	4,364)
Total McKesson Corporation stockholders’ equity (adjusted)	(862)	(1,816)	(1,405)	665)	1,799)	2,856)
Adjustment to Net Income Attributable To McKesson Corporation
Net income attributable to McKesson Corporation (as reported)	2,258)	1,476)	1,263)	1,338)	1,403)	1,202)
Add: Goodwill impairment losses	—)	—)	—)	36)	—)	—)
Net income attributable to McKesson Corporation (adjusted)	2,258)	1,476)	1,263)	1,374)	1,403)	1,202)

An analysis of the financial position from 2011 to 2016 reveals a significant divergence between reported values and those adjusted for the removal of goodwill and intangible assets. While reported assets and equity show consistent growth or stability, the adjusted figures indicate a substantial reliance on intangible valuations to maintain a positive equity position.

Asset Value Divergence: Reported total assets increased from 30,886 million USD in 2011 to 56,563 million USD in 2016. During the same period, adjusted total assets rose from 26,522 million USD to 46,777 million USD. The gap between these two metrics—representing the value of goodwill and intangible assets—expanded from 4,364 million USD in 2011 to 9,786 million USD by 2016, with the most significant increase occurring between 2013 and 2014.
Tangible Equity Erosion: A stark contrast is observed in stockholders' equity. Reported equity remained positive and exhibited a general upward trend, reaching 8,924 million USD in 2016. In contrast, adjusted stockholders' equity experienced a severe decline, falling from 2,856 million USD in 2011 to a deficit of 1,816 million USD by 2015. The shift to negative adjusted equity starting in 2014 indicates that the value of intangible assets exceeds the total reported equity, resulting in a negative tangible net worth.
Net Income Consistency: Net income attributable to the corporation remained largely unaffected by the adjustments. Reported net income grew from 1,202 million USD in 2011 to 2,258 million USD in 2016, with adjusted net income mirroring these results almost exactly. This suggests that the amortization or impairment of intangible assets has had a negligible impact on the bottom line relative to the substantial impact on the balance sheet.

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McKesson Corp., Financial Ratios: Reported vs. Adjusted

Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

McKesson Corp., adjusted financial ratios

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
Net Profit Margin
Reported net profit margin	1.18%	0.82%	0.92%	1.09%	1.14%	1.07%
Adjusted net profit margin	1.18%	0.82%	0.92%	1.12%	1.14%	1.07%
Total Asset Turnover
Reported total asset turnover	3.37	3.32	2.66	3.52	3.71	3.63
Adjusted total asset turnover	4.08	4.06	3.29	4.31	4.37	4.23
Financial Leverage
Reported financial leverage	6.34	6.73	6.07	4.92	4.84	4.28
Adjusted financial leverage	—	—	—	42.68	15.60	9.29
Return on Equity (ROE)
Reported ROE	25.30%	18.45%	14.82%	18.93%	20.54%	16.65%
Adjusted ROE	—	—	—	206.62%	77.99%	42.09%
Return on Assets (ROA)
Reported ROA	3.99%	2.74%	2.44%	3.85%	4.24%	3.89%
Adjusted ROA	4.83%	3.35%	3.02%	4.84%	5.00%	4.53%

The removal of goodwill and intangible assets from the financial metrics reveals a significant divergence between reported and adjusted performance indicators, particularly regarding asset efficiency and capital structure. While profitability margins remain largely unaffected by these adjustments, the metrics tied to the asset base and equity demonstrate substantial volatility and inflation when intangibles are excluded.

Profitability Margins: The reported and adjusted net profit margins remain nearly identical throughout the observed period. Values fluctuated within a narrow range, reaching a low of 0.82% in 2015 and a peak of 1.18% in 2016. This suggests that the amortization of intangible assets has a negligible impact on the overall net profit margin.
Asset Efficiency: A consistent improvement is observed in the adjusted total asset turnover compared to the reported ratio. The adjusted figures are systematically higher, remaining above 4.00 for most of the period, except for a dip to 3.29 in 2014. This indicates that a significant portion of the reported asset base consists of non-operating intangible assets that do not contribute directly to revenue generation.
Financial Leverage: There is a stark contrast in leverage trends. Reported financial leverage grew steadily from 4.28 in 2011 to 6.34 in 2016. However, the adjusted financial leverage experienced an exponential increase, rising from 9.29 in 2011 to 42.68 by 2013. This trend suggests that the removal of goodwill drastically reduces the equity base, thereby magnifying the perceived leverage of the organization.
Return on Investment: The Return on Equity (ROE) shows the most extreme variance; while reported ROE peaked at 25.30% in 2016, the adjusted ROE surged from 42.09% in 2011 to 206.62% in 2013. Similarly, the adjusted Return on Assets (ROA) consistently outperformed the reported ROA across all years, maintaining a premium of approximately 0.6 to 0.9 percentage points, which confirms that the exclusion of intangibles enhances the apparent efficiency of the remaining tangible asset base.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to McKesson Corporation	2,258)	1,476)	1,263)	1,338)	1,403)	1,202)
Revenues	190,884)	179,045)	137,609)	122,455)	122,734)	112,084)
Profitability Ratio
Net profit margin¹	1.18%	0.82%	0.92%	1.09%	1.14%	1.07%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted net income attributable to McKesson Corporation	2,258)	1,476)	1,263)	1,374)	1,403)	1,202)
Revenues	190,884)	179,045)	137,609)	122,455)	122,734)	112,084)
Profitability Ratio
Adjusted net profit margin²	1.18%	0.82%	0.92%	1.12%	1.14%	1.07%

2016 Calculations

¹ Net profit margin = 100 × Net income attributable to McKesson Corporation ÷ Revenues
= 100 × 2,258 ÷ 190,884 = 1.18%

² Adjusted net profit margin = 100 × Adjusted net income attributable to McKesson Corporation ÷ Revenues
= 100 × 2,258 ÷ 190,884 = 1.18%

An analysis of net income and profit margins from 2011 to 2016 reveals a period of moderate fluctuation followed by a significant increase in profitability in the final year. While net income remained relatively stable between 2011 and 2015, a substantial expansion was recorded in 2016.

Net Income Trends: Reported net income attributable to the corporation grew from US$ 1,202 million in 2011 to US$ 2,258 million in 2016. The most prominent growth occurred between 2015 and 2016, where net income increased by approximately 53%, marking the most significant year-over-year gain in the observed period.
Net Profit Margin Fluctuations: The net profit margin exhibited a period of compression between 2012 and 2015. After peaking at 1.14% in 2012, the margin declined steadily to a low of 0.82% by 2015. This downward trajectory was reversed in 2016, with the margin rising to 1.18%, representing the highest margin efficiency within the six-year timeframe.
Comparison of Reported and Adjusted Metrics: A high degree of convergence is observed between reported and adjusted figures for most of the period. A notable divergence occurred in 2013, where adjusted net income was US$ 1,374 million against a reported figure of US$ 1,338 million. This variance resulted in an adjusted net profit margin of 1.12%, which is 3 basis points higher than the reported margin of 1.09%. In all other years, reported and adjusted values were identical, indicating an absence of significant non-recurring adjustments during those intervals.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Revenues	190,884)	179,045)	137,609)	122,455)	122,734)	112,084)
Total assets	56,563)	53,870)	51,759)	34,786)	33,093)	30,886)
Activity Ratio
Total asset turnover¹	3.37	3.32	2.66	3.52	3.71	3.63
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Revenues	190,884)	179,045)	137,609)	122,455)	122,734)	112,084)
Adjusted total assets	46,777)	44,053)	41,832)	28,381)	28,061)	26,522)
Activity Ratio
Adjusted total asset turnover²	4.08	4.06	3.29	4.31	4.37	4.23

2016 Calculations

¹ Total asset turnover = Revenues ÷ Total assets
= 190,884 ÷ 56,563 = 3.37

² Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= 190,884 ÷ 46,777 = 4.08

An analysis of the asset structure from 2011 to 2016 reveals a significant expansion of the balance sheet, characterized by a substantial increase in non-operating assets. The consistent divergence between reported and adjusted total assets indicates that goodwill and intangible assets represent a growing portion of the total asset base, increasing from approximately 4.36 billion US dollars in 2011 to 9.79 billion US dollars by 2016.

Asset Base Growth Patterns: Reported total assets experienced moderate growth between 2011 and 2013, followed by a sharp escalation in 2014, where assets jumped from 34.79 billion US dollars to 51.76 billion US dollars. While adjusted total assets followed a similar upward trajectory, they remained consistently lower than reported figures, confirming that a significant portion of the growth was driven by the acquisition of intangible assets.
Impact on Asset Turnover Efficiency: The adjusted total asset turnover ratio remained consistently higher than the reported ratio across all six years. For instance, in 2012, the adjusted turnover reached 4.37 compared to a reported ratio of 3.71. This indicates that the exclusion of goodwill and intangible assets provides a more favorable view of operational efficiency, as the core tangible assets generate higher relative revenue.
Analysis of the 2014 Efficiency Contraction: A marked decline in turnover efficiency is observed in 2014, with the adjusted total asset turnover dropping to 3.29 from 4.31 in 2013. This decline aligns with the period of rapid asset expansion, suggesting that the integration of new assets initially diluted turnover efficiency. However, a recovery trend emerged in 2015 and 2016, with the adjusted ratio improving to 4.08, suggesting a successful optimization of the expanded asset base.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Total assets	56,563)	53,870)	51,759)	34,786)	33,093)	30,886)
Total McKesson Corporation stockholders’ equity	8,924)	8,001)	8,522)	7,070)	6,831)	7,220)
Solvency Ratio
Financial leverage¹	6.34	6.73	6.07	4.92	4.84	4.28
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted total assets	46,777)	44,053)	41,832)	28,381)	28,061)	26,522)
Adjusted total McKesson Corporation stockholders’ equity	(862)	(1,816)	(1,405)	665)	1,799)	2,856)
Solvency Ratio
Adjusted financial leverage²	—	—	—	42.68	15.60	9.29

2016 Calculations

¹ Financial leverage = Total assets ÷ Total McKesson Corporation stockholders’ equity
= 56,563 ÷ 8,924 = 6.34

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total McKesson Corporation stockholders’ equity
= 46,777 ÷ -862 = —

A consistent upward trajectory in reported total assets is observed from March 31, 2011, through March 31, 2016, increasing from 30,886 million USD to 56,563 million USD. A significant acceleration in asset growth occurred between 2013 and 2014. While adjusted total assets followed a similar growth pattern, the widening gap between reported and adjusted assets indicates a substantial increase in the valuation of goodwill and intangible assets over the period.

Equity Divergence: A stark contrast exists between reported and adjusted stockholders' equity. Reported equity remained relatively stable, fluctuating between 6,831 million USD and 8,924 million USD. Conversely, adjusted equity experienced a precipitous decline, falling from 2,856 million USD in 2011 to 665 million USD in 2013, eventually transitioning into negative territory starting in 2014 and remaining negative through 2016.
Reported Financial Leverage: The reported financial leverage ratio exhibited a steady increase over the six-year period, rising from 4.28 in 2011 to a peak of 6.73 in 2015, before slightly moderating to 6.34 in 2016. This trend suggests a gradual increase in the reliance on debt relative to reported equity.
Adjusted Financial Leverage: The adjusted financial leverage ratio demonstrates extreme volatility and escalation. Between 2011 and 2013, the ratio surged from 9.29 to 42.68. The absence of values for this ratio from 2014 to 2016 corresponds with the period where adjusted stockholders' equity became negative, rendering the leverage ratio mathematically skewed or non-meaningful in a traditional sense.

The analysis indicates that the company's reported solvency and leverage positions are heavily dependent on the inclusion of intangible assets. When these assets are removed to determine adjusted leverage, the financial profile shifts from one of moderate leverage to one of extreme risk, characterized by negative tangible net worth.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to McKesson Corporation	2,258)	1,476)	1,263)	1,338)	1,403)	1,202)
Total McKesson Corporation stockholders’ equity	8,924)	8,001)	8,522)	7,070)	6,831)	7,220)
Profitability Ratio
ROE¹	25.30%	18.45%	14.82%	18.93%	20.54%	16.65%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted net income attributable to McKesson Corporation	2,258)	1,476)	1,263)	1,374)	1,403)	1,202)
Adjusted total McKesson Corporation stockholders’ equity	(862)	(1,816)	(1,405)	665)	1,799)	2,856)
Profitability Ratio
Adjusted ROE²	—	—	—	206.62%	77.99%	42.09%

2016 Calculations

¹ ROE = 100 × Net income attributable to McKesson Corporation ÷ Total McKesson Corporation stockholders’ equity
= 100 × 2,258 ÷ 8,924 = 25.30%

² Adjusted ROE = 100 × Adjusted net income attributable to McKesson Corporation ÷ Adjusted total McKesson Corporation stockholders’ equity
= 100 × 2,258 ÷ -862 = —

A significant divergence is observed between reported and adjusted financial metrics from 2011 to 2016, particularly concerning the composition of stockholders' equity and the resulting impact on return on equity (ROE).

Net Income Performance: Reported and adjusted net incomes remained closely aligned throughout the analyzed period, exhibiting a consistent upward trajectory. Net income increased from 1,202 million USD in 2011 to 2,258 million USD by 2016. The minimal variance between reported and adjusted net income suggests that the adjustments primarily target balance sheet items rather than operational earnings.
Equity Base Erosion: While reported stockholders' equity remained stable and grew to 8,924 million USD by 2016, the adjusted equity base underwent a severe decline. Adjusted equity dropped from 2,856 million USD in 2011 to 665 million USD in 2013, eventually turning negative in 2014 and remaining negative through 2016. This indicates that the value of goodwill and intangible assets constitutes a substantial portion of the total reported equity, to the extent that their removal results in a negative adjusted book value.
Return on Equity (ROE) Analysis: Reported ROE demonstrated steady performance, fluctuating within a professional range between 14.82% and 25.30%. Conversely, Adjusted ROE showed extreme escalation as the equity denominator decreased, rising from 42.09% in 2011 to 206.62% in 2013. Due to the adjusted equity base becoming negative starting in 2014, the Adjusted ROE metric ceased to provide meaningful numeric values for the final three years of the period.

The correlation between the collapsing adjusted equity and the spiking adjusted ROE highlights a high reliance on intangible assets within the capital structure. The transition to a negative adjusted equity position suggests that the company's tangible assets and retained earnings, excluding goodwill and intangibles, were insufficient to cover its liabilities and share buybacks during this timeframe.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to McKesson Corporation	2,258)	1,476)	1,263)	1,338)	1,403)	1,202)
Total assets	56,563)	53,870)	51,759)	34,786)	33,093)	30,886)
Profitability Ratio
ROA¹	3.99%	2.74%	2.44%	3.85%	4.24%	3.89%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted net income attributable to McKesson Corporation	2,258)	1,476)	1,263)	1,374)	1,403)	1,202)
Adjusted total assets	46,777)	44,053)	41,832)	28,381)	28,061)	26,522)
Profitability Ratio
Adjusted ROA²	4.83%	3.35%	3.02%	4.84%	5.00%	4.53%

2016 Calculations

¹ ROA = 100 × Net income attributable to McKesson Corporation ÷ Total assets
= 100 × 2,258 ÷ 56,563 = 3.99%

² Adjusted ROA = 100 × Adjusted net income attributable to McKesson Corporation ÷ Adjusted total assets
= 100 × 2,258 ÷ 46,777 = 4.83%

An examination of the financial performance from 2011 to 2016 reveals a general upward trajectory in net income, punctuated by a significant expansion of the asset base during the 2014 fiscal year. The consistent variance between reported and adjusted figures highlights the substantial impact of goodwill and intangible assets on the overall asset valuation and the resulting return metrics.

Net Income Trends: Adjusted net income remained closely aligned with reported net income throughout the period. While growth was steady between 2011 and 2015, a significant surge occurred in 2016, with adjusted net income rising to $2,258 million, representing a substantial increase over the preceding five years.
Asset Base Expansion and Composition: Total reported assets grew moderately from $30,886 million in 2011 to $34,786 million in 2013, followed by a sharp increase to $51,759 million in 2014. The difference between reported and adjusted total assets widened considerably starting in 2014, indicating a large influx of goodwill and intangible assets. By 2016, the gap between reported assets ($56,563 million) and adjusted assets ($46,777 million) remained significant, confirming that a large portion of the balance sheet consists of non-physical assets.
Analysis of Adjusted ROA: The adjusted return on assets (ROA) consistently exceeded the reported ROA across all analyzed years. This disparity indicates that the removal of goodwill and intangible assets from the asset base provides a more favorable view of the company's operational efficiency and the productivity of its tangible assets.
ROA Volatility and Recovery: A cyclical pattern is observable in the adjusted ROA, which peaked at 5.00% in 2012 before declining to a low of 3.02% in 2014. This contraction coincides with the rapid expansion of the total asset base, suggesting that the assets acquired did not immediately generate proportional income. However, a strong recovery phase followed, with the adjusted ROA increasing to 4.83% by March 31, 2016, driven by the sharp rise in net income during that final year.

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