Inventory Disclosure
Adjustment to Inventory: Conversion from LIFO to FIFO
Adjusted Financial Ratios: LIFO vs. FIFO (Summary)
Adjusted Current Ratio
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Reynolds American Inc., balance sheet: inventory

US$ in millions

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Leaf tobacco	1,436)	1,495)	1,125)	1,049)	919)
Other raw materials	77)	110)	90)	66)	51)
Work in process	81)	88)	72)	70)	63)
Finished products	165)	173)	171)	130)	125)
Other	25)	22)	27)	18)	18)
Current cost inventories	1,784)	1,888)	1,485)	1,333)	1,176)
LIFO allowance	(139)	(154)	(204)	(206)	(192)
LIFO inventories	1,645)	1,734)	1,281)	1,127)	984)

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

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Item	Description	The company
LIFO inventories	Amount after valuation and LIFO reserves of inventory expected to be sold, or consumed within one year or operating cycle, if longer.	Reynolds American Inc. lIFO inventories increased from 2014 to 2015 but then slightly decreased from 2015 to 2016.

Adjusting LIFO Inventory to FIFO (Current) Cost

US$ in millions

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Adjustment to LIFO Inventories
LIFO inventories at LIFO (as reported)	1,645)	1,734)	1,281)	1,127)	984)
Add: Inventory LIFO reserve	139)	154)	204)	206)	192)
LIFO inventories at FIFO (adjusted)	1,784)	1,888)	1,485)	1,333)	1,176)
Adjustment to Current Assets
Current assets (as reported)	4,238)	6,187)	3,323)	3,655)	4,812)
Add: Inventory LIFO reserve	139)	154)	204)	206)	192)
Current assets (adjusted)	4,377)	6,341)	3,527)	3,861)	5,004)
Adjustment to Total Assets
Total assets (as reported)	51,095)	53,224)	15,196)	15,402)	16,557)
Add: Inventory LIFO reserve	139)	154)	204)	206)	192)
Total assets (adjusted)	51,234)	53,378)	15,400)	15,608)	16,749)
Adjustment to Shareholders’ Equity
Shareholders’ equity (as reported)	21,711)	18,252)	4,522)	5,167)	5,257)
Add: Inventory LIFO reserve	139)	154)	204)	206)	192)
Shareholders’ equity (adjusted)	21,850)	18,406)	4,726)	5,373)	5,449)
Adjustment to Net Income
Net income (as reported)	6,073)	3,253)	1,470)	1,718)	1,272)
Add: Increase (decrease) in inventory LIFO reserve	(15)	(50)	(2)	14)	7)
Net income (adjusted)	6,058)	3,203)	1,468)	1,732)	1,279)

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

Reynolds American Inc. inventory value on Dec 31, 2016 would be $1,784) (in millions) if the FIFO inventory method was used instead of LIFO. Reynolds American Inc. inventories, valued on a LIFO basis, on Dec 31, 2016 were $1,645). Reynolds American Inc. inventories would have been $139) higher than reported on Dec 31, 2016 if the FIFO method had been used instead.

Reynolds American Inc., Financial Data: Reported vs. Adjusted

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Reynolds American Inc., adjusted financial ratios

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Current Ratio
Reported current ratio (LIFO)	0.85	1.17	0.94	1.19	1.28
Adjusted current ratio (FIFO)	0.88	1.20	1.00	1.26	1.33
Net Profit Margin
Reported net profit margin (LIFO)	36.05%	21.86%	12.15%	14.36%	10.40%
Adjusted net profit margin (FIFO)	35.96%	21.52%	12.14%	14.47%	10.46%
Total Asset Turnover
Reported total asset turnover (LIFO)	0.33	0.28	0.80	0.78	0.74
Adjusted total asset turnover (FIFO)	0.33	0.28	0.79	0.77	0.73
Financial Leverage
Reported financial leverage (LIFO)	2.35	2.92	3.36	2.98	3.15
Adjusted financial leverage (FIFO)	2.34	2.90	3.26	2.90	3.07
Return on Equity (ROE)
Reported ROE (LIFO)	27.97%	17.82%	32.51%	33.25%	24.20%
Adjusted ROE (FIFO)	27.73%	17.40%	31.06%	32.24%	23.47%
Return on Assets (ROA)
Reported ROA (LIFO)	11.89%	6.11%	9.67%	11.15%	7.68%
Adjusted ROA (FIFO)	11.82%	6.00%	9.53%	11.10%	7.64%

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

Financial ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by current liabilities.	Reynolds American Inc. adjusted current ratio improved from 2014 to 2015 but then deteriorated significantly from 2015 to 2016.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Reynolds American Inc. adjusted net profit margin ratio improved from 2014 to 2015 and from 2015 to 2016.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Reynolds American Inc. adjusted total asset turnover ratio deteriorated from 2014 to 2015 but then slightly improved from 2015 to 2016.
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.	Reynolds American Inc. adjusted financial leverage ratio decreased from 2014 to 2015 and from 2015 to 2016.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Reynolds American Inc. adjusted ROE deteriorated from 2014 to 2015 but then improved from 2015 to 2016 not reaching 2014 level.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Reynolds American Inc. adjusted ROA deteriorated from 2014 to 2015 but then improved from 2015 to 2016 exceeding 2014 level.

Reynolds American Inc., Financial Ratios: Reported vs. Adjusted

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	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Current assets	4,238)	6,187)	3,323)	3,655)	4,812)
Current liabilities	4,985)	5,291)	3,544)	3,076)	3,769)
Liquidity Ratio
Current ratio¹	0.85	1.17	0.94	1.19	1.28
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted current assets	4,377)	6,341)	3,527)	3,861)	5,004)
Current liabilities	4,985)	5,291)	3,544)	3,076)	3,769)
Liquidity Ratio
Adjusted current ratio²	0.88	1.20	1.00	1.26	1.33

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 4,238 ÷ 4,985 = 0.85

² Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 4,377 ÷ 4,985 = 0.88

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Liquidity ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by current liabilities.	Reynolds American Inc. adjusted current ratio improved from 2014 to 2015 but then deteriorated significantly from 2015 to 2016.

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Net income	6,073)	3,253)	1,470)	1,718)	1,272)
Net sales, includes excise taxes	16,846)	14,884)	12,096)	11,966)	12,227)
Profitability Ratio
Net profit margin¹	36.05%	21.86%	12.15%	14.36%	10.40%
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted net income	6,058)	3,203)	1,468)	1,732)	1,279)
Net sales, includes excise taxes	16,846)	14,884)	12,096)	11,966)	12,227)
Profitability Ratio
Adjusted net profit margin²	35.96%	21.52%	12.14%	14.47%	10.46%

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ Net profit margin = 100 × Net income ÷ Net sales, includes excise taxes
= 100 × 6,073 ÷ 16,846 = 36.05%

² Adjusted net profit margin = 100 × Adjusted net income ÷ Net sales, includes excise taxes
= 100 × 6,058 ÷ 16,846 = 35.96%

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Profitability ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by revenue.	Reynolds American Inc. adjusted net profit margin ratio improved from 2014 to 2015 and from 2015 to 2016.

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Net sales, includes excise taxes	16,846)	14,884)	12,096)	11,966)	12,227)
Total assets	51,095)	53,224)	15,196)	15,402)	16,557)
Activity Ratio
Total asset turnover¹	0.33	0.28	0.80	0.78	0.74
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Net sales, includes excise taxes	16,846)	14,884)	12,096)	11,966)	12,227)
Adjusted total assets	51,234)	53,378)	15,400)	15,608)	16,749)
Activity Ratio
Adjusted total asset turnover²	0.33	0.28	0.79	0.77	0.73

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ Total asset turnover = Net sales, includes excise taxes ÷ Total assets
= 16,846 ÷ 51,095 = 0.33

² Adjusted total asset turnover = Net sales, includes excise taxes ÷ Adjusted total assets
= 16,846 ÷ 51,234 = 0.33

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Activity ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Reynolds American Inc. adjusted total asset turnover ratio deteriorated from 2014 to 2015 but then slightly improved from 2015 to 2016.

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Total assets	51,095)	53,224)	15,196)	15,402)	16,557)
Shareholders’ equity	21,711)	18,252)	4,522)	5,167)	5,257)
Solvency Ratio
Financial leverage¹	2.35	2.92	3.36	2.98	3.15
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted total assets	51,234)	53,378)	15,400)	15,608)	16,749)
Adjusted shareholders’ equity	21,850)	18,406)	4,726)	5,373)	5,449)
Solvency Ratio
Adjusted financial leverage²	2.34	2.90	3.26	2.90	3.07

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ Financial leverage = Total assets ÷ Shareholders’ equity
= 51,095 ÷ 21,711 = 2.35

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= 51,234 ÷ 21,850 = 2.34

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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.	Reynolds American Inc. adjusted financial leverage ratio decreased from 2014 to 2015 and from 2015 to 2016.

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Net income	6,073)	3,253)	1,470)	1,718)	1,272)
Shareholders’ equity	21,711)	18,252)	4,522)	5,167)	5,257)
Profitability Ratio
ROE¹	27.97%	17.82%	32.51%	33.25%	24.20%
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted net income	6,058)	3,203)	1,468)	1,732)	1,279)
Adjusted shareholders’ equity	21,850)	18,406)	4,726)	5,373)	5,449)
Profitability Ratio
Adjusted ROE²	27.73%	17.40%	31.06%	32.24%	23.47%

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ ROE = 100 × Net income ÷ Shareholders’ equity
= 100 × 6,073 ÷ 21,711 = 27.97%

² Adjusted ROE = 100 × Adjusted net income ÷ Adjusted shareholders’ equity
= 100 × 6,058 ÷ 21,850 = 27.73%

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Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Reynolds American Inc. adjusted ROE deteriorated from 2014 to 2015 but then improved from 2015 to 2016 not reaching 2014 level.

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Net income	6,073)	3,253)	1,470)	1,718)	1,272)
Total assets	51,095)	53,224)	15,196)	15,402)	16,557)
Profitability Ratio
ROA¹	11.89%	6.11%	9.67%	11.15%	7.68%
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted net income	6,058)	3,203)	1,468)	1,732)	1,279)
Adjusted total assets	51,234)	53,378)	15,400)	15,608)	16,749)
Profitability Ratio
Adjusted ROA²	11.82%	6.00%	9.53%	11.10%	7.64%

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ ROA = 100 × Net income ÷ Total assets
= 100 × 6,073 ÷ 51,095 = 11.89%

² Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × 6,058 ÷ 51,234 = 11.82%

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Profitability ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Reynolds American Inc. adjusted ROA deteriorated from 2014 to 2015 but then improved from 2015 to 2016 exceeding 2014 level.

Reynolds American Inc. (NYSE:RAI)

Analysis of Inventory

Inventory Disclosure

Adjustment to Inventory: Conversion from LIFO to FIFO

Reynolds American Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: LIFO vs. FIFO (Summary)

Reynolds American Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Current Ratio

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)