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Northrop Grumman Corp. (NOC)
Analysis of Goodwill and Intangible Assets
Advanced level
- Accounting Policy on Goodwill and Intangible Assets
- 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)
Accounting Policy on Goodwill and Intangible Assets
Northrop Grumman tests goodwill for impairment at least annually as of December 31, or when an indicator of potential impairment exists. When performing the goodwill impairment test, Northrop Grumman uses a discounted cash flow approach corroborated by comparative market multiples, where appropriate, to determine the fair value of its reporting units.
Goodwill and other purchased intangible asset balances are included in the identifiable assets of their assigned business segment. Beginning in 2018, Northrop Grumman includes the amortization of other purchased intangible assets in unallocated corporate expense within operating income as such amortization is no longer considered part of management’s evaluation of segment operating performance. Northrop Grumman’s customer-related intangible assets are generally amortized over their respective useful lives based on the pattern in which the future economic benefits of the intangible assets are expected to be consumed. Other intangible assets are generally amortized on a straight-line basis over their estimated useful lives.
Source: 10-K (filing date: 2019-01-31).
Goodwill and Intangible Assets Disclosure
Northrop Grumman Corp., balance sheet: goodwill and intangible assets
US$ in millions
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).
| Item | Description | The company |
|---|---|---|
| Net customer-related and other intangible assets | Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. | Northrop Grumman Corp.’s net customer-related and other intangible assets decreased from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
| 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. | Northrop Grumman Corp.’s goodwill increased from 2016 to 2017 and from 2017 to 2018. |
| Goodwill and other purchased intangible assets | Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. | Northrop Grumman Corp.’s goodwill and other purchased intangible assets decreased from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
Adjustments to Financial Statements: Removal of Goodwill
Northrop Grumman Corp., adjustments to financial statements
US$ in millions
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).
Northrop Grumman Corp., Financial Data: Reported vs. Adjusted
Adjusted Financial Ratios: Removal of Goodwill (Summary)
Northrop Grumman Corp., adjusted financial ratios
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).
| Financial ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Northrop Grumman Corp.’s adjusted total asset turnover ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 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. |
|
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders’ equity. | |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Northrop Grumman Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Northrop Grumman Corp., Financial Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).
2018 Calculations
1 Total asset turnover = Sales ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Sales ÷ Adjusted total assets
= ÷ =
| Activity ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Northrop Grumman Corp.’s adjusted total asset turnover ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).
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. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).
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. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-01-29), 10-K (filing date: 2017-01-30), 10-K (filing date: 2016-02-01), 10-K (filing date: 2015-02-02).
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. | Northrop Grumman Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |