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Analysis of Income Taxes
Difficulty: Advanced
- Income Tax Accounting Policy
- Income Tax Expense (Benefit)
- Effective Income Tax Rate (EITR)
- Components of Deferred Tax Assets and Liabilities
- Analyst Adjustments: Removal of Deferred Taxes
- Adjusted Ratios: Removal of Deferred Taxes (Summary)
- Adjusted Net Profit Margin
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Income Tax Accounting Policy
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the 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. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. Apple records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Apple recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.
Source: 10-K (filing date: 2018-11-05).
Income Tax Expense (Benefit)
Apple Inc., income tax expense (benefit), continuing operations
USD $ in millions
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Based on: 10-K (filing date: 2018-11-05), 10-K (filing date: 2017-11-03), 10-K (filing date: 2016-10-26), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-27), 10-K (filing date: 2013-10-30).
| Item | Description | The company |
|---|---|---|
| Current | Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. | Apple Inc.’s current declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
| Deferred | Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. | Apple Inc.’s deferred increased from 2016 to 2017 but then declined significantly from 2017 to 2018. |
| Provision for income taxes | Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. | Apple Inc.’s provision for income taxes increased from 2016 to 2017 but then declined significantly from 2017 to 2018. |
Effective Income Tax Rate (EITR)
Apple Inc., effective income tax rate (EITR) reconciliation
| Sep 29, 2018 | Sep 30, 2017 | Sep 24, 2016 | Sep 26, 2015 | Sep 27, 2014 | Sep 28, 2013 | ||
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Based on: 10-K (filing date: 2018-11-05), 10-K (filing date: 2017-11-03), 10-K (filing date: 2016-10-26), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-27), 10-K (filing date: 2013-10-30).
| Item | Description | The company |
|---|---|---|
| Effective tax rate | Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. | Apple Inc.’s effective tax rate declined from 2016 to 2017 and from 2017 to 2018. |
Components of Deferred Tax Assets and Liabilities
Apple Inc., components of deferred tax assets and liabilities
USD $ in millions
Based on: 10-K (filing date: 2018-11-05), 10-K (filing date: 2017-11-03), 10-K (filing date: 2016-10-26), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-27), 10-K (filing date: 2013-10-30).
| Item | Description | The company |
|---|---|---|
| Deferred tax assets | Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. | Apple Inc.’s deferred tax assets declined from 2016 to 2017 and from 2017 to 2018. |
| 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. | Apple Inc.’s net deferred tax assets (liabilities) declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
Analyst Adjustments: Removal of Deferred Taxes
Apple Inc., adjustments to financial data
USD $ in millions
Based on: 10-K (filing date: 2018-11-05), 10-K (filing date: 2017-11-03), 10-K (filing date: 2016-10-26), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-27), 10-K (filing date: 2013-10-30).
Apple Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Apple Inc., adjusted ratios
Based on: 10-K (filing date: 2018-11-05), 10-K (filing date: 2017-11-03), 10-K (filing date: 2016-10-26), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-27), 10-K (filing date: 2013-10-30).
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Apple Inc.’s adjusted net profit margin improved from 2016 to 2017 but then deteriorated significantly 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. |
Apple Inc.’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. | Apple Inc.’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. | Apple Inc.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018. |
Apple Inc., Ratios: Reported vs. Adjusted
Adjusted Net Profit Margin
Based on: 10-K (filing date: 2018-11-05), 10-K (filing date: 2017-11-03), 10-K (filing date: 2016-10-26), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-27), 10-K (filing date: 2013-10-30).
2018 Calculations
1 Net profit margin = 100 × Net income ÷ Net sales
= 100 × ÷ =
2 Adjusted net profit margin = 100 × Adjusted net income ÷ Net sales
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Apple Inc.’s adjusted net profit margin improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2018-11-05), 10-K (filing date: 2017-11-03), 10-K (filing date: 2016-10-26), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-27), 10-K (filing date: 2013-10-30).
2018 Calculations
1 Financial leverage = Total assets ÷ Shareholders’ equity
= ÷ =
2 Adjusted financial leverage = Total assets ÷ Adjusted shareholders’ equity
= ÷ =
| 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. |
Apple Inc.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2018-11-05), 10-K (filing date: 2017-11-03), 10-K (filing date: 2016-10-26), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-27), 10-K (filing date: 2013-10-30).
2018 Calculations
1 ROE = 100 × Net income ÷ Shareholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted shareholders’ equity
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. | Apple Inc.’s adjusted ROE deteriorated from 2016 to 2017 and from 2017 to 2018. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2018-11-05), 10-K (filing date: 2017-11-03), 10-K (filing date: 2016-10-26), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-27), 10-K (filing date: 2013-10-30).
2018 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Adjusted net income ÷ Total assets
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Apple Inc.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018. |