Stock Analysis on Net
Stock Analysis on Net

Palo Alto Networks Inc. (NASDAQ:PANW)

Analysis of Income Taxes

Microsoft Excel

Income Tax Expense (Benefit)

Palo Alto Networks Inc., income tax expense (benefit), continuing operations

US$ in thousands

Microsoft Excel
12 months ended: Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019 Jul 31, 2018
Federal 26,100 2,600 3,300 3,800 (1,300) (600)
State 44,000 1,500 1,700 1,300 (900) 1,600
Foreign 44,000 58,800 41,300 39,200 27,500 23,300
Current 114,100 62,900 46,300 44,300 25,300 24,300
Federal 19,300 (300) (5,900) (1,300) (11,300) (3,300)
State 400 100 100 100 (3,000) (1,300)
Foreign (7,200) (2,900) (6,600) (7,900) (3,700) (2,000)
Deferred 12,500 (3,100) (12,400) (9,100) (18,000) (6,600)
Provision for income taxes 126,600 59,800 33,900 35,200 7,300 17,700

Based on: 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31), 10-K (reporting date: 2018-07-31).

Item Description The company
Current Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Palo Alto Networks Inc. current increased from 2021 to 2022 and from 2022 to 2023.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Palo Alto Networks Inc. deferred increased from 2021 to 2022 and from 2022 to 2023.
Provision for income taxes Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Palo Alto Networks Inc. provision for income taxes increased from 2021 to 2022 and from 2022 to 2023.

Effective Income Tax Rate (EITR)

Palo Alto Networks Inc., effective income tax rate (EITR) reconciliation

Microsoft Excel
Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019 Jul 31, 2018
Federal statutory income tax rate 21.00% 21.00% 21.00% 21.00% 21.00% 26.80%
State taxes, net of federal tax benefit 2.80% 2.70% 1.30% 3.00% 7.90% 5.00%
Effects of non-U.S. operations 9.70% -16.50% -3.10% 667.50% 89.30% 12.60%
Change in valuation allowance 15.50% -158.70% -40.70% -714.10% -196.90% 29.00%
Effect of U.S. tax law change 0.00% 0.00% 0.00% 0.00% 0.60% -104.60%
Share-based compensation -12.60% 83.60% 5.00% -5.10% 44.90% 8.60%
Amortization of deferred tax charges 0.00% 0.00% 0.00% 0.00% 0.00% -6.50%
Tax credits -15.60% 41.50% 9.90% 17.90% 35.00% 25.40%
Non-deductible expenses 2.30% -2.50% -1.30% -3.90% -11.50% -4.90%
Other, net -0.70% 0.00% 0.60% -1.50% -0.10% -5.00%
Effective income tax rate 22.40% -28.90% -7.30% -15.20% -9.80% -13.60%

Based on: 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31), 10-K (reporting date: 2018-07-31).

Item Description The company
Effective income tax rate Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Palo Alto Networks Inc. effective income tax rate decreased from 2021 to 2022 but then increased from 2022 to 2023 exceeding 2021 level.

Components of Deferred Tax Assets and Liabilities

Palo Alto Networks Inc., components of deferred tax assets and liabilities

US$ in thousands

Microsoft Excel
Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019 Jul 31, 2018
Accruals and reserves 88,500 141,100 125,000 116,500 53,300 59,600
Operating lease liabilities 94,100 86,000 — — — —
Deferred revenue 708,100 475,500 364,900 272,500 212,800 132,900
Net operating loss carryforwards 551,000 759,100 556,700 348,000 269,900 189,500
Tax credits 338,900 317,400 230,800 179,600 143,300 113,400
Capitalized research expenditures 354,800 — — — — —
Share-based compensation 66,000 59,200 53,900 33,700 25,900 21,400
Fixed assets and intangible assets 1,698,300 1,742,600 1,789,600 1,458,800 — —
Interest carryforward — 55,800 19,200 — — —
Gross deferred tax assets 3,899,700 3,636,700 3,140,100 2,409,100 705,200 516,800
Valuation allowance (3,586,700) (3,414,100) (2,933,300) (2,240,400) (561,900) (420,100)
Deferred tax assets 313,000 222,600 206,800 168,700 143,300 96,700
Operating lease right-of-use assets (73,500) — — — — —
Fixed assets and intangible assets — — — — (26,000) (43,300)
Deferred contract costs (186,700) (183,600) (165,400) (130,800) (94,600) (34,000)
Other deferred tax liabilities (58,200) (27,800) (32,300) (28,900) (15,700) (10,900)
Deferred tax liabilities (318,400) (211,400) (197,700) (159,700) (136,300) (88,200)
Net deferred tax assets (liabilities) (5,400) 11,200 9,100 9,000 7,000 8,500

Based on: 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31), 10-K (reporting date: 2018-07-31).

Item Description The company
Gross deferred tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Palo Alto Networks Inc. gross deferred tax assets increased from 2021 to 2022 and from 2022 to 2023.
Deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Palo Alto Networks Inc. deferred tax assets increased from 2021 to 2022 and from 2022 to 2023.
Net deferred tax assets (liabilities) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. Palo Alto Networks Inc. net deferred tax assets (liabilities) increased from 2021 to 2022 but then decreased significantly from 2022 to 2023.

Adjustments to Financial Statements: Removal of Deferred Taxes

Palo Alto Networks Inc., adjustments to financial statements

US$ in thousands

Microsoft Excel
Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019 Jul 31, 2018
Adjustment to Total Assets
Total assets (as reported) 14,501,100 12,253,600 10,241,600 9,065,400 6,592,200 5,823,000
Less: Noncurrent deferred tax assets, net — 11,200 9,100 9,000 7,000 8,500
Total assets (adjusted) 14,501,100 12,242,400 10,232,500 9,056,400 6,585,200 5,814,500
Adjustment to Total Liabilities
Total liabilities (as reported) 12,752,700 12,043,600 9,478,000 7,963,600 5,005,900 4,834,700
Less: Noncurrent deferred tax liabilities, net 5,400 — — — — —
Total liabilities (adjusted) 12,747,300 12,043,600 9,478,000 7,963,600 5,005,900 4,834,700
Adjustment to Stockholders’ Equity
Stockholders’ equity (as reported) 1,748,400 210,000 634,500 1,101,800 1,586,300 966,400
Less: Net deferred tax assets (liabilities) (5,400) 11,200 9,100 9,000 7,000 8,500
Stockholders’ equity (adjusted) 1,753,800 198,800 625,400 1,092,800 1,579,300 957,900
Adjustment to Net Income (loss)
Net income (loss) (as reported) 439,700 (267,000) (498,900) (267,000) (81,900) (147,900)
Add: Deferred income tax expense (benefit) 12,500 (3,100) (12,400) (9,100) (18,000) (6,600)
Net income (loss) (adjusted) 452,200 (270,100) (511,300) (276,100) (99,900) (154,500)

Based on: 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31), 10-K (reporting date: 2018-07-31).

Palo Alto Networks Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Palo Alto Networks Inc., adjusted financial ratios

Microsoft Excel
Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019 Jul 31, 2018
Net Profit Margin
Reported net profit margin 6.38% -4.85% -11.72% -7.83% -2.82% -6.51%
Adjusted net profit margin 6.56% -4.91% -12.01% -8.10% -3.45% -6.80%
Total Asset Turnover
Reported total asset turnover 0.48 0.45 0.42 0.38 0.44 0.39
Adjusted total asset turnover 0.48 0.45 0.42 0.38 0.44 0.39
Financial Leverage
Reported financial leverage 8.29 58.35 16.14 8.23 4.16 6.03
Adjusted financial leverage 8.27 61.58 16.36 8.29 4.17 6.07
Return on Equity (ROE)
Reported ROE 25.15% -127.14% -78.63% -24.23% -5.16% -15.30%
Adjusted ROE 25.78% -135.87% -81.76% -25.27% -6.33% -16.13%
Return on Assets (ROA)
Reported ROA 3.03% -2.18% -4.87% -2.95% -1.24% -2.54%
Adjusted ROA 3.12% -2.21% -5.00% -3.05% -1.52% -2.66%

Based on: 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31), 10-K (reporting date: 2018-07-31).

Financial ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Palo Alto Networks Inc. adjusted net profit margin ratio improved from 2021 to 2022 and from 2022 to 2023.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Palo Alto Networks Inc. adjusted total asset turnover ratio improved from 2021 to 2022 and from 2022 to 2023.
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.		 Palo Alto Networks Inc. adjusted financial leverage ratio increased from 2021 to 2022 but then decreased significantly from 2022 to 2023.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Palo Alto Networks Inc. adjusted ROE deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Palo Alto Networks Inc. adjusted ROA improved from 2021 to 2022 and from 2022 to 2023.

Palo Alto Networks Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

Microsoft Excel
Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019 Jul 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Net income (loss) 439,700 (267,000) (498,900) (267,000) (81,900) (147,900)
Revenue 6,892,700 5,501,500 4,256,100 3,408,400 2,899,600 2,273,100
Profitability Ratio
Net profit margin1 6.38% -4.85% -11.72% -7.83% -2.82% -6.51%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income (loss) 452,200 (270,100) (511,300) (276,100) (99,900) (154,500)
Revenue 6,892,700 5,501,500 4,256,100 3,408,400 2,899,600 2,273,100
Profitability Ratio
Adjusted net profit margin2 6.56% -4.91% -12.01% -8.10% -3.45% -6.80%

Based on: 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31), 10-K (reporting date: 2018-07-31).

2023 Calculations

1 Net profit margin = 100 × Net income (loss) ÷ Revenue
= 100 × 439,700 ÷ 6,892,700 = 6.38%

2 Adjusted net profit margin = 100 × Adjusted net income (loss) ÷ Revenue
= 100 × 452,200 ÷ 6,892,700 = 6.56%

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Palo Alto Networks Inc. adjusted net profit margin ratio improved from 2021 to 2022 and from 2022 to 2023.

Adjusted Total Asset Turnover

Microsoft Excel
Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019 Jul 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Revenue 6,892,700 5,501,500 4,256,100 3,408,400 2,899,600 2,273,100
Total assets 14,501,100 12,253,600 10,241,600 9,065,400 6,592,200 5,823,000
Activity Ratio
Total asset turnover1 0.48 0.45 0.42 0.38 0.44 0.39
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Revenue 6,892,700 5,501,500 4,256,100 3,408,400 2,899,600 2,273,100
Adjusted total assets 14,501,100 12,242,400 10,232,500 9,056,400 6,585,200 5,814,500
Activity Ratio
Adjusted total asset turnover2 0.48 0.45 0.42 0.38 0.44 0.39

Based on: 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31), 10-K (reporting date: 2018-07-31).

2023 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= 6,892,700 ÷ 14,501,100 = 0.48

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= 6,892,700 ÷ 14,501,100 = 0.48

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Palo Alto Networks Inc. adjusted total asset turnover ratio improved from 2021 to 2022 and from 2022 to 2023.

Adjusted Financial Leverage

Microsoft Excel
Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019 Jul 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Total assets 14,501,100 12,253,600 10,241,600 9,065,400 6,592,200 5,823,000
Stockholders’ equity 1,748,400 210,000 634,500 1,101,800 1,586,300 966,400
Solvency Ratio
Financial leverage1 8.29 58.35 16.14 8.23 4.16 6.03
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted total assets 14,501,100 12,242,400 10,232,500 9,056,400 6,585,200 5,814,500
Adjusted stockholders’ equity 1,753,800 198,800 625,400 1,092,800 1,579,300 957,900
Solvency Ratio
Adjusted financial leverage2 8.27 61.58 16.36 8.29 4.17 6.07

Based on: 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31), 10-K (reporting date: 2018-07-31).

2023 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity
= 14,501,100 ÷ 1,748,400 = 8.29

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= 14,501,100 ÷ 1,753,800 = 8.27

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.		 Palo Alto Networks Inc. adjusted financial leverage ratio increased from 2021 to 2022 but then decreased significantly from 2022 to 2023.

Adjusted Return on Equity (ROE)

Microsoft Excel
Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019 Jul 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Net income (loss) 439,700 (267,000) (498,900) (267,000) (81,900) (147,900)
Stockholders’ equity 1,748,400 210,000 634,500 1,101,800 1,586,300 966,400
Profitability Ratio
ROE1 25.15% -127.14% -78.63% -24.23% -5.16% -15.30%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income (loss) 452,200 (270,100) (511,300) (276,100) (99,900) (154,500)
Adjusted stockholders’ equity 1,753,800 198,800 625,400 1,092,800 1,579,300 957,900
Profitability Ratio
Adjusted ROE2 25.78% -135.87% -81.76% -25.27% -6.33% -16.13%

Based on: 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31), 10-K (reporting date: 2018-07-31).

2023 Calculations

1 ROE = 100 × Net income (loss) ÷ Stockholders’ equity
= 100 × 439,700 ÷ 1,748,400 = 25.15%

2 Adjusted ROE = 100 × Adjusted net income (loss) ÷ Adjusted stockholders’ equity
= 100 × 452,200 ÷ 1,753,800 = 25.78%

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Palo Alto Networks Inc. adjusted ROE deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level.

Adjusted Return on Assets (ROA)

Microsoft Excel
Jul 31, 2023 Jul 31, 2022 Jul 31, 2021 Jul 31, 2020 Jul 31, 2019 Jul 31, 2018
As Reported
Selected Financial Data (US$ in thousands)
Net income (loss) 439,700 (267,000) (498,900) (267,000) (81,900) (147,900)
Total assets 14,501,100 12,253,600 10,241,600 9,065,400 6,592,200 5,823,000
Profitability Ratio
ROA1 3.03% -2.18% -4.87% -2.95% -1.24% -2.54%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income (loss) 452,200 (270,100) (511,300) (276,100) (99,900) (154,500)
Adjusted total assets 14,501,100 12,242,400 10,232,500 9,056,400 6,585,200 5,814,500
Profitability Ratio
Adjusted ROA2 3.12% -2.21% -5.00% -3.05% -1.52% -2.66%

Based on: 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31), 10-K (reporting date: 2020-07-31), 10-K (reporting date: 2019-07-31), 10-K (reporting date: 2018-07-31).

2023 Calculations

1 ROA = 100 × Net income (loss) ÷ Total assets
= 100 × 439,700 ÷ 14,501,100 = 3.03%

2 Adjusted ROA = 100 × Adjusted net income (loss) ÷ Adjusted total assets
= 100 × 452,200 ÷ 14,501,100 = 3.12%

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Palo Alto Networks Inc. adjusted ROA improved from 2021 to 2022 and from 2022 to 2023.