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Microsoft Excel LibreOffice Calc

Medtronic PLC (MDT)


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Goodwill is the excess of the purchase price over the estimated fair value of net assets of acquired businesses. In accordance with U.S. GAAP, goodwill is not amortized. Medtronic assesses goodwill for impairment annually in the third quarter of the fiscal year and whenever an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is performed at a reporting unit level. There were no changes in reporting units during fiscal year 2019. The test for impairment of goodwill requires Medtronic to make several estimates about fair value, most of which are based on projected future cash flows. Medtronic calculates the excess of each reporting unit’s fair value over its carrying amount, including goodwill, utilizing a discounted cash flow analysis. An impairment loss is recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit.

Intangible assets include patents, trademarks, tradenames, customer relationships, purchased technology, and in-process research and development (IPR&D). Intangible assets with a definite life are amortized on a straight-line basis with estimated useful lives typically ranging from three to 20 years. Amortization is recognized within amortization of intangible assets in the consolidated statements of income. Intangible assets with a definite life are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset (asset group) may not be recoverable. When events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable, Medtronic calculates the excess of an intangible asset’s carrying value over its undiscounted future cash flows. If the carrying value is not recoverable, an impairment loss is recognized based on the amount by which the carrying value exceeds the fair value. The inputs used in the fair value analysis fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value.

Acquired IPR&D represents the fair value assigned to those research and development projects that were acquired in a business combination for which the related products have not received regulatory approval and have no alternative future use. IPR&D is capitalized at its fair value as an indefinite-lived intangible asset, and any development costs incurred after the acquisition are expensed as incurred. The fair value of IPR&D is determined by estimating the future cash flows of each project and discounting the net cash flows back to their present values. Upon achieving regulatory approval or commercial viability for the related product, the indefinite-lived intangible asset is accounted for as a definite-lived asset and is amortized on a straight-line basis over the estimated useful life. If the project is not completed or is terminated or abandoned, Medtronic may have an impairment related to the IPR&D which is charged to expense. Indefinite-lived intangible assets are tested for impairment annually in the third quarter of the fiscal year and whenever events or changes in circumstances indicate that the carrying amount may be impaired. Impairment is calculated as the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted future cash flow analysis. IPR&D acquired outside of a business combination is expensed immediately.

Source: 10-K (filing date: 2019-06-21).


Goodwill and Intangible Assets Disclosure

Medtronic PLC, Statement of Financial Position, Goodwill and Intangible Assets

US$ in millions

Microsoft Excel LibreOffice Calc
Apr 26, 2019 Apr 27, 2018 Apr 28, 2017 Apr 29, 2016 Apr 24, 2015 Apr 25, 2014
Customer-related hidden hidden hidden hidden hidden hidden
Purchased technology and patents hidden hidden hidden hidden hidden hidden
Trademarks and tradenames hidden hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden hidden
Definite-lived intangible assets, gross carrying amount hidden hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden hidden
Definite-lived intangible assets, net hidden hidden hidden hidden hidden hidden
IPR&D hidden hidden hidden hidden hidden hidden
Tradenames hidden hidden hidden hidden hidden hidden
Indefinite-lived intangible assets hidden hidden hidden hidden hidden hidden
Intangible assets, net hidden hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden hidden
Goodwill and other intangible assets, net hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-28), 10-K (filing date: 2015-06-23), 10-K (filing date: 2014-06-20).

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. Medtronic PLC’s intangible assets, net declined from 2017 to 2018 and from 2018 to 2019.
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. Medtronic PLC’s goodwill increased from 2017 to 2018 and from 2018 to 2019.
Goodwill and other intangible assets, net Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Medtronic PLC’s goodwill and other intangible assets, net declined from 2017 to 2018 and from 2018 to 2019.

Analyst Adjustments: Removal of Goodwill

Medtronic PLC, adjustments to financial data

US$ in millions

Microsoft Excel LibreOffice Calc
Apr 26, 2019 Apr 27, 2018 Apr 28, 2017 Apr 29, 2016 Apr 24, 2015 Apr 25, 2014
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Shareholders’ Equity
Shareholders’ equity (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Shareholders’ equity (adjusted) hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-28), 10-K (filing date: 2015-06-23), 10-K (filing date: 2014-06-20).


Medtronic PLC, Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Goodwill (Summary)

Medtronic PLC, adjusted ratios

Microsoft Excel LibreOffice Calc
Apr 26, 2019 Apr 27, 2018 Apr 28, 2017 Apr 29, 2016 Apr 24, 2015 Apr 25, 2014
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-28), 10-K (filing date: 2015-06-23), 10-K (filing date: 2014-06-20).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Medtronic PLC’s adjusted total asset turnover improved from 2017 to 2018 and from 2018 to 2019.
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.
Medtronic PLC’s adjusted financial leverage declined from 2017 to 2018 but then slightly increased from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Medtronic PLC’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Medtronic PLC’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Medtronic PLC, Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Apr 26, 2019 Apr 27, 2018 Apr 28, 2017 Apr 29, 2016 Apr 24, 2015 Apr 25, 2014
As Reported
Selected Financial Data (US$ in millions)
Net sales hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net sales hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-28), 10-K (filing date: 2015-06-23), 10-K (filing date: 2014-06-20).

2019 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Medtronic PLC’s adjusted total asset turnover improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Apr 26, 2019 Apr 27, 2018 Apr 28, 2017 Apr 29, 2016 Apr 24, 2015 Apr 25, 2014
As Reported
Selected Financial Data (US$ in millions)
Total assets hidden hidden hidden hidden hidden hidden
Shareholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted total assets hidden hidden hidden hidden hidden hidden
Adjusted shareholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-28), 10-K (filing date: 2015-06-23), 10-K (filing date: 2014-06-20).

2019 Calculations

1 Financial leverage = Total assets ÷ Shareholders’ equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= hidden ÷ hidden = hidden

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.
Medtronic PLC’s adjusted financial leverage declined from 2017 to 2018 but then slightly increased from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Apr 26, 2019 Apr 27, 2018 Apr 28, 2017 Apr 29, 2016 Apr 24, 2015 Apr 25, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Medtronic hidden hidden hidden hidden hidden hidden
Shareholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net income attributable to Medtronic hidden hidden hidden hidden hidden hidden
Adjusted shareholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-28), 10-K (filing date: 2015-06-23), 10-K (filing date: 2014-06-20).

2019 Calculations

1 ROE = 100 × Net income attributable to Medtronic ÷ Shareholders’ equity
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Net income attributable to Medtronic ÷ Adjusted shareholders’ equity
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Medtronic PLC’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Apr 26, 2019 Apr 27, 2018 Apr 28, 2017 Apr 29, 2016 Apr 24, 2015 Apr 25, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Medtronic hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net income attributable to Medtronic hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-06-21), 10-K (filing date: 2018-06-22), 10-K (filing date: 2017-06-27), 10-K (filing date: 2016-06-28), 10-K (filing date: 2015-06-23), 10-K (filing date: 2014-06-20).

2019 Calculations

1 ROA = 100 × Net income attributable to Medtronic ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Net income attributable to Medtronic ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Medtronic PLC’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.