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Analysis of Goodwill and Intangible Assets
Difficulty: Advanced
- Goodwill and Intangible Assets Accounting Policy
- Goodwill and Intangible Assets Disclosure
- Analyst Adjustments: Removal of Goodwill
- Adjusted 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
NIKE performs annual impairment tests on goodwill and intangible assets with indefinite lives in the fourth quarter of each fiscal year or when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or an intangible asset with an indefinite life below its carrying value. Events or changes in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investments in the reporting unit, planned divestitures or an expectation the carrying amount may not be recoverable, among other factors. NIKE may first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, NIKE determines it is more likely than not the fair value of the reporting unit is greater than its carrying amount, the two-step impairment test is unnecessary. The two-step impairment test first requires NIKE to estimate the fair value of its reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and NIKE proceeds to step two of the impairment analysis. In step two of the analysis, NIKE measures and records an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value, if any.
Indefinite-lived intangible assets primarily consist of acquired trade names and trademarks. NIKE may first perform a qualitative assessment to determine whether it is more likely than not an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, theCompany determines it is more likely than not that the indefinite-lived intangible asset is not impaired, no quantitative fair value measurement is necessary. If a quantitative fair value measurement calculation is required for these intangible assets, NIKE utilizes the relief-from-royalty method. This method assumes trade names and trademarks have value to the extent their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires NIKE to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital.
Source: 10-K (filing date: 2018-07-25).
Goodwill and Intangible Assets Disclosure
Nike Inc., Statement of Financial Position, Goodwill and Intangible Assets
USD $ in millions
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| Acquired trademarks and other intangible assets, gross carrying amount | |
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| Acquired trademarks and other intangible assets, net carrying amount | |
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| Indefinite-lived trademarks | |
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| Identifiable intangible assets, net | |
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| Goodwill | |
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| Identified intangible assets and goodwill | |
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Based on: 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25), 10-K (filing date: 2013-07-23).
| Item | Description | The company |
|---|---|---|
| Identifiable 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. | Nike Inc.’s identifiable intangible assets, net increased from 2016 to 2017 and 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. | Nike Inc.’s goodwill increased from 2016 to 2017 and from 2017 to 2018. |
| Identified 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. | Nike Inc.’s identified intangible assets and goodwill increased from 2016 to 2017 and from 2017 to 2018. |
Analyst Adjustments: Removal of Goodwill
Nike Inc., adjustments to financial data
USD $ in millions
Based on: 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25), 10-K (filing date: 2013-07-23).
Nike Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Goodwill (Summary)
Nike Inc., adjusted ratios
Based on: 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25), 10-K (filing date: 2013-07-23).
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Nike Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 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. |
Nike Inc.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018. |
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Nike Inc.’s adjusted ROE improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018. |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Nike Inc.’s adjusted ROA improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018. |
Nike Inc., Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25), 10-K (filing date: 2013-07-23).
2018 Calculations
1 Total asset turnover = Revenues ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Nike Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25), 10-K (filing date: 2013-07-23).
2018 Calculations
1 Financial leverage = Total assets ÷ Shareholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= ÷ =
| 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. |
Nike Inc.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25), 10-K (filing date: 2013-07-23).
2018 Calculations
1 ROE = 100 × Net income ÷ Shareholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Net income ÷ Adjusted shareholders’ equity
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | Nike Inc.’s adjusted ROE improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25), 10-K (filing date: 2013-07-23).
2018 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Nike Inc.’s adjusted ROA improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018. |