Microsoft Excel LibreOffice Calc

United Technologies Corp. (UTX)


Analysis of Inventory

Difficulty: Advanced


Inventory Accounting Policy

Inventories and contracts in progress are stated at the lower of cost or estimated realizable value and are primarily based on first-in, first-out (FIFO) or average cost methods; however, certain Collins Aerospace Systems and Carrier entities use the last-in, first-out (LIFO) method. If inventories that were valued using the LIFO method had been valued under the FIFO method, they would have been higher by $119 million and $106 million at December 31, 2018 and 2017, respectively.

Valuation reserves for excess, obsolete, and slow-moving inventory are estimated by comparing the inventory levels of individual parts to both future sales forecasts or production requirements and historical usage rates in order to identify inventory where the resale value or replacement value is less than inventoriable cost. Other factors that management considers in determining the adequacy of these reserves include whether individual inventory parts meet current specifications and cannot be substituted for a part currently being sold or used as a service part, overall market conditions, and other inventory management initiatives. Manufacturing costs are allocated to current production and firm contracts. Under prior accounting within commercial aerospace, the unit of accounting for certain contracts was the contract, and early-contract OEM unit costs in excess of the average unit costs expected over the contract were capitalized and amortized over lower-cost units later in the contract. These costs were eliminated through retained earnings on January 1, 2018 and will not be amortized into future earnings based on the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers.

Source: 10-K (filing date: 2019-02-07).


Inventory Disclosure

United Technologies Corp., Statement of Financial Position, Inventory

USD $ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Raw materials 3,052  2,038  2,040  2,037  2,056 
Work-in-process 2,673  3,366  2,787  2,422  3,596 
Finished goods 4,358  3,845  3,305  3,183  3,776 
Contracts in progress –  10,205  9,395  8,668  8,189 
Inventories & contracts in progress, gross 10,083  19,454  17,527  16,310  17,617 
Progress payments, secured by lien, on U.S. Government contracts –  (236) (130) (239) (300)
Billings on contracts in progress –  (9,337) (8,693) (7,936) (7,452)
Inventories & contracts in progress, net 10,083  9,881  8,704  8,135  9,865 

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-05).

Item Description The company
Inventories & contracts in progress, net Amount after valuation and LIFO reserves of inventory expected to be sold, or consumed within one year or operating cycle, if longer. United Technologies Corp.’s inventories & contracts in progress, net increased from 2016 to 2017 and from 2017 to 2018.

Adjustment to Inventory: from LIFO to FIFO

Adjusting LIFO Inventory to FIFO (Current) Cost

USD $ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Inventories & Contracts In Progress, Net
Inventories & contracts in progress, net at LIFO (as reported) 10,083  9,881  8,704  8,135  9,865 
Add: Inventory LIFO reserve 119  106  114  127  130 
Inventories & contracts in progress, net at FIFO (adjusted) 10,202  9,987  8,818  8,262  9,995 
Adjustment to Current Assets
Current assets (as reported) 35,503  32,858  28,550  26,706  29,758 
Add: Inventory LIFO reserve 119  106  114  127  130 
Current assets (adjusted) 35,622  32,964  28,664  26,833  29,888 
Adjustment to Total Assets
Total assets (as reported) 134,211  96,920  89,706  87,484  91,289 
Add: Inventory LIFO reserve 119  106  114  127  130 
Total assets (adjusted) 134,330  97,026  89,820  87,611  91,419 
Adjustment to Shareowners’ Equity
Shareowners’ equity (as reported) 38,446  29,610  27,579  27,358  31,213 
Add: Inventory LIFO reserve 119  106  114  127  130 
Shareowners’ equity (adjusted) 38,565  29,716  27,693  27,485  31,343 
Adjustment to Net Income Attributable To Common Shareowners
Net income attributable to common shareowners (as reported) 5,269  4,552  5,055  7,608  6,220 
Add: Increase (decrease) in inventory LIFO reserve 13  (8) (13) (3) (3)
Net income attributable to common shareowners (adjusted) 5,282  4,544  5,042  7,605  6,217 

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-05).

United Technologies Corp.’s inventory value on Dec 31, 2018 would be $10,202  (in millions) if the FIFO inventory method was used instead of LIFO. United Technologies Corp.’s inventories, valued on a LIFO basis, on Dec 31, 2018 were $10,083 . United Technologies Corp.’s inventories would have been $119  higher than reported on Dec 31, 2018 if the FIFO method had been used instead.


United Technologies Corp., Financial Data: Reported vs. Adjusted


Adjusted Ratios: LIFO vs. FIFO (Summary)

United Technologies Corp., adjusted ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Current Ratio
Reported current ratio (LIFO) 1.13 1.35 1.30 1.18 1.30
Adjusted current ratio (FIFO) 1.14 1.35 1.31 1.19 1.31
Net Profit Margin
Reported net profit margin (LIFO) 7.92% 7.61% 8.83% 13.56% 9.55%
Adjusted net profit margin (FIFO) 7.94% 7.59% 8.81% 13.56% 9.55%
Total Asset Turnover
Reported total asset turnover (LIFO) 0.50 0.62 0.64 0.64 0.71
Adjusted total asset turnover (FIFO) 0.50 0.62 0.64 0.64 0.71
Financial Leverage
Reported financial leverage (LIFO) 3.49 3.27 3.25 3.20 2.92
Adjusted financial leverage (FIFO) 3.48 3.27 3.24 3.19 2.92
Return on Equity (ROE)
Reported ROE (LIFO) 13.70% 15.37% 18.33% 27.81% 19.93%
Adjusted ROE (FIFO) 13.70% 15.29% 18.21% 27.67% 19.84%
Return on Assets (ROA)
Reported ROA (LIFO) 3.93% 4.70% 5.64% 8.70% 6.81%
Adjusted ROA (FIFO) 3.93% 4.68% 5.61% 8.68% 6.80%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-05).

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by current liabilities. United Technologies Corp.’s adjusted current ratio improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. United Technologies Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. United Technologies Corp.’s adjusted total asset turnover deteriorated from 2016 to 2017 and from 2017 to 2018.
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.
United Technologies Corp.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. United Technologies Corp.’s adjusted ROE deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. United Technologies Corp.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018.

United Technologies Corp., Ratios: Reported vs. Adjusted


Adjusted Current Ratio

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Current assets 35,503  32,858  28,550  26,706  29,758 
Current liabilities 31,368  24,391  21,906  22,618  22,895 
Ratio
Current ratio1 1.13 1.35 1.30 1.18 1.30
Adjusted: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Adjusted current assets 35,622  32,964  28,664  26,833  29,888 
Current liabilities 31,368  24,391  21,906  22,618  22,895 
Ratio
Adjusted current ratio2 1.14 1.35 1.31 1.19 1.31

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-05).

2018 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= 35,503 ÷ 31,368 = 1.13

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 35,622 ÷ 31,368 = 1.14

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by current liabilities. United Technologies Corp.’s adjusted current ratio improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to common shareowners 5,269  4,552  5,055  7,608  6,220 
Net sales 66,501  59,837  57,244  56,098  65,100 
Ratio
Net profit margin1 7.92% 7.61% 8.83% 13.56% 9.55%
Adjusted: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to common shareowners 5,282  4,544  5,042  7,605  6,217 
Net sales 66,501  59,837  57,244  56,098  65,100 
Ratio
Adjusted net profit margin2 7.94% 7.59% 8.81% 13.56% 9.55%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-05).

2018 Calculations

1 Net profit margin = 100 × Net income attributable to common shareowners ÷ Net sales
= 100 × 5,269 ÷ 66,501 = 7.92%

2 Adjusted net profit margin = 100 × Adjusted net income attributable to common shareowners ÷ Net sales
= 100 × 5,282 ÷ 66,501 = 7.94%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. United Technologies Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net sales 66,501  59,837  57,244  56,098  65,100 
Total assets 134,211  96,920  89,706  87,484  91,289 
Ratio
Total asset turnover1 0.50 0.62 0.64 0.64 0.71
Adjusted: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Net sales 66,501  59,837  57,244  56,098  65,100 
Adjusted total assets 134,330  97,026  89,820  87,611  91,419 
Ratio
Adjusted total asset turnover2 0.50 0.62 0.64 0.64 0.71

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-05).

2018 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= 66,501 ÷ 134,211 = 0.50

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 66,501 ÷ 134,330 = 0.50

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. United Technologies Corp.’s adjusted total asset turnover deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Total assets 134,211  96,920  89,706  87,484  91,289 
Shareowners’ equity 38,446  29,610  27,579  27,358  31,213 
Ratio
Financial leverage1 3.49 3.27 3.25 3.20 2.92
Adjusted: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Adjusted total assets 134,330  97,026  89,820  87,611  91,419 
Adjusted shareowners’ equity 38,565  29,716  27,693  27,485  31,343 
Ratio
Adjusted financial leverage2 3.48 3.27 3.24 3.19 2.92

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-05).

2018 Calculations

1 Financial leverage = Total assets ÷ Shareowners’ equity
= 134,211 ÷ 38,446 = 3.49

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareowners’ equity
= 134,330 ÷ 38,565 = 3.48

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.
United Technologies Corp.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to common shareowners 5,269  4,552  5,055  7,608  6,220 
Shareowners’ equity 38,446  29,610  27,579  27,358  31,213 
Ratio
ROE1 13.70% 15.37% 18.33% 27.81% 19.93%
Adjusted: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to common shareowners 5,282  4,544  5,042  7,605  6,217 
Adjusted shareowners’ equity 38,565  29,716  27,693  27,485  31,343 
Ratio
Adjusted ROE2 13.70% 15.29% 18.21% 27.67% 19.84%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-05).

2018 Calculations

1 ROE = 100 × Net income attributable to common shareowners ÷ Shareowners’ equity
= 100 × 5,269 ÷ 38,446 = 13.70%

2 Adjusted ROE = 100 × Adjusted net income attributable to common shareowners ÷ Adjusted shareowners’ equity
= 100 × 5,282 ÷ 38,565 = 13.70%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. United Technologies Corp.’s adjusted ROE deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to common shareowners 5,269  4,552  5,055  7,608  6,220 
Total assets 134,211  96,920  89,706  87,484  91,289 
Ratio
ROA1 3.93% 4.70% 5.64% 8.70% 6.81%
Adjusted: from LIFO to FIFO
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to common shareowners 5,282  4,544  5,042  7,605  6,217 
Adjusted total assets 134,330  97,026  89,820  87,611  91,419 
Ratio
Adjusted ROA2 3.93% 4.68% 5.61% 8.68% 6.80%

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-05).

2018 Calculations

1 ROA = 100 × Net income attributable to common shareowners ÷ Total assets
= 100 × 5,269 ÷ 134,211 = 3.93%

2 Adjusted ROA = 100 × Adjusted net income attributable to common shareowners ÷ Adjusted total assets
= 100 × 5,282 ÷ 134,330 = 3.93%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. United Technologies Corp.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018.