McKesson Corp. (NYSE:MCK)

Inventories, net (US$ in millions)

The net inventory value shows a consistent upward trend from March 31, 2011, to March 31, 2016. Starting at 9,225 million US dollars in 2011, inventories increased each year, reaching 15,335 million US dollars by 2016. This indicates a substantial growth over the five-year period.

The growth in inventories was relatively moderate between 2011 and 2013, with values rising from 9,225 million to 10,335 million. However, there was a more significant increase beginning in 2014, where inventories jumped to 13,308 million, and this upward momentum continued through 2015 and 2016.

The consistent increase may reflect expansion efforts, higher demand, or changes in inventory management strategies. The steady growth suggests the company has been increasing its stock levels systematically over the years.

The financial data over the six-year period indicates a general upward trend in both reported and LIFO reserve adjusted figures across inventories, current assets, total assets, stockholders' equity, and net income attributable to the corporation.

Inventories

Reported net inventories increased steadily from $9,225 million in 2011 to $15,335 million in 2016, indicating growth in stock levels or acquisition of inventory assets. The LIFO reserve adjusted inventories are consistently higher than the reported figures, reflecting the adjustment impact of inventory accounting methods. Adjusted inventories rose from $9,321 million to $16,347 million, marking a substantial increase and widening the gap between reported and adjusted amounts, particularly from 2014 onward.

Current Assets

Reported current assets grew from $22,357 million in 2011 to $38,437 million in 2016, showing a notable increase in liquid and short-term assets. Adjusted current assets followed a similar trajectory, growing from $22,453 million to $39,449 million, with the adjusted values slightly exceeding the reported figures each year. The acceleration in current assets is prominent after 2013, suggesting either operational expansion or accumulation of working capital.

Total Assets

Reported total assets exhibited significant growth from $30,886 million in 2011 to $56,563 million in 2016, with a particularly sharp rise between 2013 and 2014. Adjusted total assets mirrored this pattern, rising from $30,982 million to $57,575 million, consistently exceeding the reported figures, which reflects the impact of the LIFO reserve adjustment on overall asset valuation.

Stockholders' Equity

Reported stockholders’ equity showed some fluctuations, starting at $7,220 million in 2011, dipping to $6,831 million in 2012, and then varying between $7,070 million and $8,924 million through 2016. The adjusted equity figures are consistently higher, increasing from $7,316 million to $9,936 million over the period. The increases in equity, especially from 2013 onwards, align with the rising asset base and improved profitability.

Net Income Attributable to the Corporation

Reported net income manifested moderate growth with minor fluctuations, moving from $1,202 million in 2011 to a peak of $2,258 million in 2016. Adjusted net income followed a similar path but with slightly higher values each year, reaching $2,502 million in 2016. Notably, adjusted net income increased more significantly in the later years, indicating potentially improved earnings quality when considering inventory accounting adjustments.

Overall, the adjusted (LIFO reserve) financial data consistently exceed the reported figures, reflecting the impact of inventory adjustments on the company’s financial position. The trends show substantial asset growth and improved profitability from 2013 onwards, with notable increases in inventories and current assets supporting operational expansion. Equity growth trends are positive, though more moderate, and income increases suggest enhanced earnings capacity especially in the last two years of the period analyzed.

The data reveals evolving financial performance indicators over the six-year period, reflecting both stability and fluctuations across various metrics.

Current Ratio

The reported current ratio demonstrated slight volatility, starting at 1.19 in 2011 and gradually declining to approximately 1.09-1.10 from 2012 onwards. The adjusted current ratio followed a similar trend but showed marginally higher values, stabilizing around 1.12 from 2014 to 2016. This suggests generally consistent short-term liquidity with minor improvements when adjusting for inventory LIFO reserve.

Net Profit Margin

The reported net profit margin exhibited modest fluctuations, peaking at 1.14% in 2012, then declining to a low of 0.82% in 2015, before increasing markedly to 1.18% in 2016. The adjusted margin showed a more favorable trend, remaining above 1% in most years except 2015, and reaching a high of 1.31% in 2016. The adjustment improves profitability metrics significantly, highlighting inventory accounting effects on reported profits.

Total Asset Turnover

Both reported and adjusted total asset turnover ratios followed a comparable pattern, starting near 3.6 in 2011-2012, dipping substantially to about 2.64-2.66 in 2014, and recovering somewhat in subsequent years to approximately 3.3. The dip in 2014 indicates reduced efficiency in asset utilization during that year, with partial recovery thereafter.

Financial Leverage

The reported financial leverage ratio increased steadily from 4.28 in 2011 to a peak of 6.73 in 2015 before declining to 6.34 in 2016. The adjusted leverage mirrored this trend but with slightly lower values each year. This upward trend suggests increased reliance on debt financing or other liabilities over the period, peaking in 2015 and easing slightly afterward.

Return on Equity (ROE)

Reported ROE rose significantly from 16.65% in 2011 to a high of 25.3% in 2016, despite a drop in the middle years. Adjusted ROE values were slightly lower but consistently close to reported figures, reflecting improved equity returns over time, especially evident in the substantial increases from 2014 onward.

Return on Assets (ROA)

Reported ROA started at 3.89% in 2011, experienced a decline reaching a low of 2.44% in 2014, then recovered to nearly 4% by 2016. The adjusted ROA values were slightly higher in the latter years, reinforcing the notion that inventory adjustments positively impact asset profitability metrics.

Overall, the adjusted data indicates that ignoring inventory LIFO reserves understates the company’s liquidity, profitability, and asset returns. Trends reveal a temporary dip in operational efficiency and profitability around 2014-2015, followed by a recovery and strengthening in both leverage and returns to equity holders by 2016.

The data presents both reported and LIFO reserve adjusted financial figures related to current assets and current ratios over a six-year period from 2011 to 2016.

Current Assets

Reported current assets show an overall upward trend throughout the period analyzed. Starting at 22,357 million US dollars in 2011, the figure increased moderately each year, reaching 38,437 million US dollars by 2016. Notably, there was a significant jump between 2013 and 2014, where reported current assets rose from 23,170 million to 32,573 million US dollars.

Adjusted current assets, which incorporate inventory LIFO reserve adjustments, followed a similar pattern but at slightly higher values each year compared to the reported figures. This adjustment reflects a consistent incremental increase relative to the reported figures, with adjusted current assets starting at 22,453 million US dollars in 2011 and rising to 39,449 million US dollars by 2016. The year-over-year increases reflect a similar pronounced rise between 2013 and 2014, indicating that inventory valuation adjustments contribute noticeably to the asset base.

Current Ratios

The reported current ratio exhibited a relatively stable trend, fluctuating marginally around the range of 1.08 to 1.19. Specifically, it started at 1.19 in 2011 and declined to around 1.09 in the subsequent years, maintaining stability near 1.10 during the later years of the period.

In contrast, the adjusted current ratio, which accounts for LIFO inventory adjustments, was slightly higher in most years compared to the reported ratio. It began at 1.20 in 2011 and showed minor fluctuations, stabilizing at 1.12 during the last three years considered. This suggests that inventory adjustments positively influence the liquidity position as measured by the current ratio.

In summary, both reported and adjusted current assets demonstrate steady growth over the assessed period with a notable increase in the mid-period years. Adjusted figures consistently exceed reported ones due to inventory LIFO reserve considerations, which also result in marginally improved liquidity metrics as seen in the adjusted current ratios. The stability in current ratios indicates maintained operational liquidity despite the growth in asset size.

Net Income Trends

The reported net income attributable to the company showed a generally positive trajectory from March 31, 2011, to March 31, 2016. Starting at 1202 million US dollars in 2011, it peaked at 2258 million US dollars in 2016. Despite some fluctuations, the overall movement indicates an upward trend in profitability over the six-year period. The adjusted net income figures, accounting for inventory LIFO reserve adjustments, followed a similar pattern but with consistently higher values than the reported figures. This adjustment suggests that inventory-related accounting methods had a positive impact on profit calculations, particularly noticeable from 2014 onwards, where adjusted net income rose more sharply than reported net income.

Net Profit Margin Analysis

The reported net profit margin experienced moderate variability, beginning at 1.07% in 2011 and ending at 1.18% in 2016. There was a decline observed between 2013 and 2015, reaching as low as 0.82% in 2015, before recovering in 2016. In contrast, the adjusted net profit margin displayed generally higher percentages, ranging from 1.08% in 2011 to 1.31% in 2016. The adjusted margin maintained a more stable and higher level than the reported margin, particularly noticeable from 2014 forward, where it did not follow the downward trend seen in the reported margin during 2014 and 2015. This difference suggests that adjustments for inventory accounting contributed to a more favorable portrayal of operating efficiency and profitability.

Insights on Adjustments

The consistent premium of adjusted figures over reported ones implies that the LIFO reserve adjustments positively affected the financial performance metrics. The growing divergence between reported and adjusted net income from 2013 onwards indicates that inventory accounting methods may have increasingly influenced earnings measurement. The adjustments seemingly provide a more optimistic view of the company's profitability and margin trends, particularly in the latter years of the reported period.

The analysis of the financial data reveals several notable trends in the company's asset base and efficiency metrics over the six-year period ending in March 2016.

Total Assets

Both reported and inventory LIFO reserve adjusted total assets show a consistent upward trajectory throughout the period. Reported total assets increased from approximately 30.9 billion US dollars in 2011 to about 56.6 billion US dollars in 2016.

Similarly, adjusted total assets rose from about 31.0 billion US dollars to approximately 57.6 billion US dollars over the same timeframe, with the adjusted figures consistently marginally higher than the reported ones, reflecting the effects of accounting for inventory valuation adjustments.

Total Asset Turnover Ratio

The reported total asset turnover ratio, which measures how efficiently the company generates revenue from its asset base, exhibits some fluctuations. Starting at a relatively high ratio of 3.63 in 2011, it slightly increased to 3.71 in 2012 but then declined to a low point of 2.66 in 2014. Subsequent years showed a recovery to 3.32 in 2015 and 3.37 in 2016.

The adjusted total asset turnover ratio follows a very similar pattern, with marginally lower values throughout. Beginning at 3.62 in 2011, it peaked at 3.7 in 2012, dropped to 2.64 in 2014, and rebounded to 3.28 in 2015 and 3.32 in 2016.

This pattern indicates a temporary decline in asset efficiency in 2014, which may be attributable to the significant increase in total assets that year, suggesting the company expanded its asset base faster than revenue growth during that period. The recovery in asset turnover in subsequent years implies improved utilization of assets or better sales performance relative to assets held.

Overall, the company has experienced steady asset growth alongside fluctuations in asset turnover efficiency, with notable asset expansion in 2014 coinciding with a dip in turnover ratios, followed by a partial recovery. The adjusted figures confirm the trends observed in the reported data, underscoring the consistency of these financial dynamics when inventory valuation adjustments are considered.

The analysis of the financial data over the six-year period reveals several important trends and adjustments when considering LIFO reserve adjustments.

Total Assets

Reported total assets increased steadily from US$30,886 million in 2011 to US$56,563 million in 2016, showing significant growth, particularly between 2013 and 2014 where assets jumped substantially from approximately US$34,786 million to US$51,759 million. The adjusted total assets, which incorporate inventory LIFO reserve adjustments, closely follow the reported figures but are consistently slightly higher. This adjustment suggests that the inventory valuation under LIFO has a moderate impact on asset valuation, becoming more pronounced in later years, with adjusted assets in 2016 at US$57,575 million compared to reported US$56,563 million.

Stockholders’ Equity

The reported stockholders’ equity experienced some fluctuations, initially declining from US$7,220 million in 2011 to US$6,831 million in 2012, before gradually increasing to US$8,924 million by 2016. The adjusted stockholders’ equity follows a similar pattern but remains higher each year, indicating that adjusting for the LIFO reserve positively affects equity measurement. The gap between reported and adjusted equity also widened notably by 2016, with adjusted equity reaching US$9,936 million, implying that inventory accounting significantly influences equity valuation over time.

Financial Leverage

Financial leverage ratios, calculated as the proportion of assets to stockholders’ equity, indicate an increasing trend from 2011 through 2015, with reported leverage rising from 4.28 to a peak of 6.73 in 2015. Adjusted leverage displays a consistent pattern but remains slightly lower than reported leverage, reaching 6.23 in 2015. Both leverage metrics decrease somewhat in 2016, with reported leverage at 6.34 and adjusted at 5.79. The generally increasing leverage over the years suggests a growing reliance on debt or liabilities relative to equity, with adjustments accounting for inventory valuation resulting in somewhat lower leverage, reflecting the impact of accounting methods on perceived financial risk.

The financial data over the six-year period reveals several key trends and insights regarding profitability and equity performance when adjusted for inventory LIFO reserve effects.

Net Income Trends

Both reported and adjusted net incomes demonstrate an overall upward trajectory. Reported net income grew from 1,202 million US$ in 2011 to 2,258 million US$ in 2016, showing significant growth, particularly between 2015 and 2016. Adjusted net income follows a similar pattern but consistently remains slightly higher than reported figures, reflecting adjustments likely due to inventory accounting effects. The adjusted net income increased steadily, with a notable jump from 1,813 million US$ in 2015 to 2,502 million US$ in 2016.

Stockholders' Equity

Reported total stockholders’ equity experienced fluctuations, starting at 7,220 million US$ in 2011, dipping in 2012, then gradually rising to 8,924 million US$ by 2016. The adjusted equity figures closely mirror the reported numbers but are consistently higher, highlighting the accounting adjustments for inventory LIFO reserves. The adjusted equity increased substantially from 7,316 million US$ in 2011 to 9,936 million US$ in 2016, with the most significant growth occurring after 2013.

Return on Equity (ROE)

The reported ROE exhibits variability across the years, peaking in 2012 at 20.54%, then declining and rebounding to a high of 25.3% in 2016. The adjusted ROE aligns closely with the reported ROE but generally shows slightly lower figures during earlier years and a closer correlation in later years. Notably, the adjusted ROE dips less in 2014 compared to the reported figure, reflecting a steadier return when accounting for inventory adjustments. By 2016, both reported and adjusted ROE indicate strong profitability relative to equity, with adjusted ROE at 25.18% and reported ROE at 25.3%.

Overall, the trends demonstrate improved profitability and equity growth over the period, with accounting adjustments for inventory LIFO reserves providing a nuanced but consistent enhancement to net income and stockholders’ equity figures. The robust increase in both net income and ROE in the final year suggests a strong financial performance culminating in 2016.

Net Income Trends

The reported net income showed a generally upward trajectory from 2011 to 2016, rising from $1,202 million in 2011 to $2,258 million in 2016. Notably, there was a slight decline between 2012 and 2014, followed by a strong increase thereafter. Adjusted net income, which accounts for inventory LIFO reserve adjustments, consistently exceeded reported net income for all years. The adjusted figures exhibited a similar pattern but reflected higher values, peaking at $2,502 million in 2016, indicating incremental income benefits when considering inventory adjustments.

Total Assets Evolution

Both reported and adjusted total assets increased steadily over the six-year period. Reported total assets grew from $30,886 million in 2011 to $56,563 million in 2016, while adjusted total assets were marginally higher each year, reaching $57,575 million in 2016. The parallel increase in both reported and adjusted assets reflects consistent asset growth, with adjustments slightly enhancing asset base perceptions due to inventory valuation.

Return on Assets (ROA) Performance

Reported ROA followed a somewhat volatile pattern, peaking at 4.24% in 2012, declining sharply to 2.44% in 2014, and rebounding to 3.99% by 2016. Adjusted ROA generally mirrored this path but demonstrated higher percentages, with a lesser dip in 2014 (3.02%) and a steadier rise through 2016 to 4.35%. The consistent premium of adjusted ROA over reported ROA highlights the favorable impact of inventory adjustments on profitability metrics relative to asset base.

Overall Insights

The data reveals progressive growth in income and asset base over the period, with temporary fluctuations mid-period. The adjustments for inventory LIFO reserve positively affect both net income and asset valuation, leading to better profitability ratios after adjustment. This implies that inventory accounting methods materially influence the financial performance and position assessments, providing a more favorable view when adjusted.