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Microsoft Excel LibreOffice Calc

Adobe Inc. (NASDAQ:ADBE)

Analysis of Income Taxes

Advanced level

Accounting Policy on Income Taxes

Adobe uses the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Adobe records a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.

Source: 10-K (filing date: 2020-01-21).

Income Tax Expense (Benefit)

Adobe Inc., income tax expense (benefit), continuing operations

US$ in thousands

Microsoft Excel LibreOffice Calc
12 months ended Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
United States federal
Foreign
State and local
Current
United States federal
Foreign
State and local
Deferred
Tax expense attributable to employee stock plans
Provision for income taxes

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

Item Description The company
Current Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Adobe Inc.’s current increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Adobe Inc.’s deferred decreased from 2017 to 2018 but then increased from 2018 to 2019 not reaching 2017 level.
Provision for income taxes Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Adobe Inc.’s provision for income taxes decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

Effective Income Tax Rate (EITR)

Adobe Inc., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
U.S. federal statutory tax rate
Effective income tax rate

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

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. Adobe Inc.’s effective income tax rate decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

Components of Deferred Tax Assets and Liabilities

Adobe Inc., components of deferred tax assets and liabilities

US$ in thousands

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
Acquired technology
Reserves and accruals
Deferred revenue
Stock-based compensation
Net operating loss carryforwards of acquired companies
Credit carryforwards
Capitalized expenses
Benefits relating to tax positions
Other
Gross deferred tax assets
Deferred tax asset valuation allowance
Deferred tax assets
Depreciation and amortization
Undistributed earnings of foreign subsidiaries
Prepaid expenses
Acquired intangible assets
Deferred tax liabilities
Net deferred tax assets (liabilities)

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

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. Adobe Inc.’s gross deferred tax assets increased from 2017 to 2018 and from 2018 to 2019.
Deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Adobe Inc.’s deferred tax assets increased from 2017 to 2018 but then slightly decreased from 2018 to 2019.
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. Adobe Inc.’s net deferred tax assets (liabilities) increased from 2017 to 2018 but then slightly decreased from 2018 to 2019.

Deferred Tax Assets and Liabilities, Classification

Adobe Inc., deferred tax assets and liabilities, classification

US$ in thousands

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
Current deferred tax assets
Non-current deferred tax liabilities

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

Item Description The company
Non-current deferred tax liabilities Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. Adobe Inc.’s non-current deferred tax liabilities decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

Adjustments to Financial Statements: Removal of Deferred Taxes

Adobe Inc., adjustments to financial statements

US$ in thousands

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
Adjustment to Current Assets
Current assets (as reported)
Less: Current deferred tax assets, net
Current assets (adjusted)
Adjustment to Total Assets
Total assets (as reported)
Less: Current deferred tax assets, net
Total assets (adjusted)
Adjustment to Total Liabilities
Total liabilities (as reported)
Less: Noncurrent deferred tax liabilities, net
Total liabilities (adjusted)
Adjustment to Stockholders’ Equity
Stockholders’ equity (as reported)
Less: Net deferred tax assets (liabilities)
Stockholders’ equity (adjusted)
Adjustment to Net Income
Net income (as reported)
Add: Deferred income tax expense (benefit)
Net income (adjusted)

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

Adobe Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Adobe Inc., adjusted financial ratios

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
Current Ratio
Reported current ratio
Adjusted current ratio
Net Profit Margin
Reported net profit margin
Adjusted net profit margin
Total Asset Turnover
Reported total asset turnover
Adjusted total asset turnover
Financial Leverage
Reported financial leverage
Adjusted financial leverage
Return on Equity (ROE)
Reported ROE
Adjusted ROE
Return on Assets (ROA)
Reported ROA
Adjusted ROA

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

Financial ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Adobe Inc.’s adjusted current ratio deteriorated from 2017 to 2018 and from 2018 to 2019.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Adobe Inc.’s adjusted net profit margin ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Adobe Inc.’s adjusted total asset turnover ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 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.		 Adobe Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 but then slightly decreased from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Adobe Inc.’s adjusted ROE improved from 2017 to 2018 and from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Adobe Inc.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adobe Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
As Reported
Selected Financial Data (US$ in thousands)
Current assets
Current liabilities
Liquidity Ratio
Current ratio1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted current assets
Current liabilities
Liquidity Ratio
Adjusted current ratio2

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

2019 Calculations

1 Current ratio = Current assets ÷ Current liabilities
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2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
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Liquidity ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Adobe Inc.’s adjusted current ratio deteriorated from 2017 to 2018 and from 2018 to 2019.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net income
Revenue
Profitability Ratio
Net profit margin1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income
Revenue
Profitability Ratio
Adjusted net profit margin2

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

2019 Calculations

1 Net profit margin = 100 × Net income ÷ Revenue
= 100 × hidden ÷ hidden = hidden

2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenue
= 100 × hidden ÷ hidden = hidden

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Adobe Inc.’s adjusted net profit margin ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
As Reported
Selected Financial Data (US$ in thousands)
Revenue
Total assets
Activity Ratio
Total asset turnover1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Revenue
Adjusted total assets
Activity Ratio
Adjusted total asset turnover2

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

2019 Calculations

1 Total asset turnover = Revenue ÷ Total assets
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2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
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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. Adobe Inc.’s adjusted total asset turnover ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
As Reported
Selected Financial Data (US$ in thousands)
Total assets
Stockholders’ equity
Solvency Ratio
Financial leverage1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted total assets
Adjusted stockholders’ equity
Solvency Ratio
Adjusted financial leverage2

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

2019 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity
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2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
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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.		 Adobe Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 but then slightly decreased from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net income
Stockholders’ equity
Profitability Ratio
ROE1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income
Adjusted stockholders’ equity
Profitability Ratio
Adjusted ROE2

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

2019 Calculations

1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted stockholders’ equity
= 100 × hidden ÷ hidden = hidden

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Adobe Inc.’s adjusted ROE improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Nov 29, 2019 Nov 30, 2018 Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014
As Reported
Selected Financial Data (US$ in thousands)
Net income
Total assets
Profitability Ratio
ROA1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in thousands)
Adjusted net income
Adjusted total assets
Profitability Ratio
Adjusted ROA2

Based on: 10-K (filing date: 2020-01-21), 10-K (filing date: 2019-01-25), 10-K (filing date: 2018-01-22), 10-K (filing date: 2017-01-20), 10-K (filing date: 2016-01-19), 10-K (filing date: 2015-01-20).

2019 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Adobe Inc.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.