Automatic Data Processing Inc. (NASDAQ:ADP)

Current Income Tax Expense

The current income tax expense demonstrates fluctuations over the analyzed periods. It started at 740.6 million USD in mid-2016, experienced a general decline reaching its lowest point at 549.8 million USD in mid-2018, then showed a recovery and upward trend in subsequent years. By mid-2021, current income tax expense rose sharply to 1.0138 billion USD, the highest in the given period, indicating increased taxable income or changes in tax regulations impacting current tax liabilities.

Deferred Income Tax Expense

The deferred income tax expense displays significant variability and volatility over time. Initial values in 2016 and 2017 were relatively low, with a modest increase from 0.7 million USD to 8.1 million USD. The figure then fluctuated, decreasing to 0.5 million USD in 2018, before rising sharply to 26 million USD by mid-2020. A notable reversal occurred in mid-2021 when deferred tax expense turned negative, registering a considerable deferred tax benefit of -251.1 million USD. This suggests substantial deferred tax asset recognition or adjustments reducing the deferred tax expense significantly in that year.

Provision for Income Taxes

The overall provision for income taxes, which is the aggregate of current and deferred expenses, mirrors the movements of its components with some moderation. Starting at 741.3 million USD in mid-2016, it peaked near 797.7 million USD in 2017 before declining steeply to 550.3 million USD in 2018. From 2019 to 2020, the provision increased steadily, reaching 716.1 million USD in 2020. By mid-2021, the provision rose further to 762.7 million USD, despite the large deferred tax benefit observed in that period, indicating that the strong increase in current tax expense more than offset the deferred tax effect.

Insights and Summary

The data highlights a pattern where current income tax expense is the dominant and more stable component, generally trending upward towards the end of the period. Deferred income tax expense is more erratic and occasionally can have a significant impact on the total tax provision, as seen in 2021 where a substantial deferred tax benefit emerged. Overall, the total provision for income taxes follows a similar trend to current taxes, but deferred taxes introduce variability that could reflect timing differences, tax rate changes, or reassessments of deferred tax assets and liabilities. This volatility in deferred taxes should be monitored for its impact on future tax expense and cash flow planning.

The analysis of the financial data reveals several notable trends in the tax-related components over the six-year period ending June 30, 2021.

U.S. Federal Statutory Tax Rate

The statutory tax rate remained stable at 35% for 2016 and 2017 but showed a significant decrease to 28.1% in 2018, followed by a further decline to 21% from 2019 onwards. This change reflects a structural reduction in the federal tax rate over the period.

State Taxes, Net of Federal Tax Benefit

This tax component was fairly stable in the initial years, fluctuating slightly around 2.1%-2.4%, then increased to 2.7% in 2019 and 2020, before decreasing to 2% in 2021. The movement indicates some variability in state tax impacts, with a recent downward adjustment.

U.S. Tax on Foreign Income and Utilization of Foreign Tax Credits

There is a declining trend in U.S. tax on foreign income, dropping from 5.5% in 2016 to negligible values by 2018, and no reported values thereafter. Similarly, the utilization of foreign tax credits moved from -7% in 2016 toward less negative values by 2018, with no subsequent data provided. These trends suggest a diminishing influence of foreign income taxation and related credits over time.

Qualified Production Activities and Research Tax Credits

Various components related to Section 199 and research tax credits show a reduction in their impact over the early years, with negative percentages indicating tax benefits. These specific benefits appear to cease or be unreported from 2019 onward.

Foreign Rate Differential

This metric first appears in 2019 at 1.6%, decreasing gradually to 1.0% by 2021. The positive values indicate an increase in effective tax rate due to foreign jurisdiction tax rates differing from domestic rates, with a downward trend in recent years.

Excess Tax Benefit from Stock-based Compensation

Values associated with stock-based compensation's tax benefits are negative, ranging between -1.3% and -0.2%, showing a consistent but diminishing impact over the full period. The reduction implies that excess tax benefits related to stock compensation have been lessening over time.

Other

Other tax-related effects remain negative throughout the period, with percentages around -1% to -1.2%, signifying small but persistent favorable impacts on the effective tax rate.

Effective Tax Rate

The effective tax rate follows a downward trend consistent with the statutory federal rate decrease. Starting at 33.2% in 2016, it declines steadily to 22.7% by 2021. This trend indicates successful management or restructuring of tax liabilities and benefits, resulting in a lower overall tax burden.

Overall, the data indicates a significant reduction in the overall tax burden, primarily influenced by changes in the federal statutory tax rate and reduced impact from foreign income taxation and related credits. The persistence of other smaller components and stock-based compensation benefits also contributed, although their impact lessened over time. The effective tax rate's gradual decline reflects these combined factors.

The financial data presents various tax-related and deferred asset and liability items, revealing notable trends across six fiscal years from 2016 to 2021.

Accrued Expenses Not Currently Deductible

These expenses exhibit fluctuations, peaking at 294,500 thousand USD in 2017 before declining to 178,300 thousand USD in 2018. A recovery occurs afterward, reaching 244,200 thousand USD by 2021, indicating variable timing or recognition patterns in deductible expenses.

Stock-Based Compensation Expense

A clear downward trend is observed over the period, with expenses dropping from 74,600 thousand USD in 2016 to a low of 33,800 thousand USD in 2020, followed by a slight increase to 38,400 thousand USD in 2021. This may reflect changes in employee compensation plans or expense recognition policies.

Foreign Tax Credits

The foreign tax credits decrease steadily from 47,100 thousand USD in 2016 to 20,100 thousand USD in 2020, with a modest rise to 21,300 thousand USD in 2021. This decline could relate to changes in foreign income or tax legislation affecting credit availability.

Net Operating Losses

Net operating losses show a relatively stable pattern with minor fluctuations, ranging between 44,600 thousand USD and 54,000 thousand USD over the years, suggesting consistent carryforward losses utilized or maintained for tax purposes.

Unrealized Investment Losses, Net

Data is sparse, with a single entry of 83,600 thousand USD in 2018, indicating a significant unrealized loss that year. Other years lack reported figures, limiting comprehensive trend analysis.

Retirement Benefits

Reported retirement benefits abruptly appear in 2019 at 5,600 thousand USD, then surge to 46,000 thousand USD in 2020 before no data in 2021, marking a significant increase and possible change in reporting or plan structure during this period.

Other (Various Items)

The 'Other' category fluctuates moderately, with values ranging from 18,700 thousand USD in 2017 up to 34,700 thousand USD in 2021, indicating miscellaneous tax-related variations.

Deferred Tax Assets

Deferred tax assets decrease overall from a peak of 487,700 thousand USD in 2017 to roughly 384,900 thousand USD in 2021, reflecting possible diminishing future tax benefits or asset realizations.

Valuation Allowances

Valuation allowances exhibit pronounced volatility, starting negative at -15,400 thousand USD in 2016, improving to -9,400 thousand USD in 2017, then worsening to -46,000 thousand USD in 2018. Improvement follows, concluding at -13,400 thousand USD by 2021, indicating changing assessments of deferred asset realizability.

Deferred Tax Assets, Net

The net deferred tax assets trend downward from 438,800 thousand USD in 2016 to 371,500 thousand USD in 2021, with a notable dip in 2018. This suggests fluctuation in the net recoverable deferred tax position within the company.

Prepaid Retirement Benefits

Data for prepaid retirement benefits is incomplete, but available figures show a significant decrease from -77,200 thousand USD in 2016 to -19,300 thousand USD in 2018 and a resumption at -37,700 thousand USD in 2021, suggesting fluctuating prepaid amounts possibly tied to pension funding or accounting changes.

Deferred Revenue

Deferred revenue has a notable jump in liability from -43,200 thousand USD in 2016 to approximately -475,000 thousand USD starting 2019, maintaining elevated levels thereafter. This sharp increase suggests significant prepayments or contract liabilities recognized over these years.

Fixed and Intangible Assets

There is a consistent increase in the negative balance from -171,400 thousand USD in 2016 to a high of -288,200 thousand USD in 2020, with an unexpected improvement to -119,400 thousand USD in 2021. This may indicate impairment charges or amortization followed by asset disposals or revaluations.

Prepaid Expenses

Prepaid expenses show a declining trend in absolute value, reducing from -118,000 thousand USD in 2016 to -27,900 thousand USD in 2021, reflecting changes in advance payments or expense timing.

Unrealized Investment Gains, Net

These gains vary significantly, with values improving from a large negative -176,200 thousand USD in 2016 to a low of -334,00 thousand USD in 2017, disappearing in 2018, then again negative values persist through 2021. This volatility suggests fluctuating market values of investments affecting net gains/losses.

Tax on Unrepatriated Earnings

This liability first appears in 2018 at -28,300 thousand USD and trends down to -11,400 thousand USD in 2021, showing a gradual reduction in this tax obligation, possibly due to repatriation strategies or changes in tax policy.

Deferred Tax Liabilities

Deferred tax liabilities show significant fluctuation, starting around -589,600 thousand USD in 2016, improving to -387,700 thousand USD in 2018, then sharply increasing to over -1,060,000 thousand USD in 2020 before improving to -806,200 thousand USD in 2021. This suggests volatile recognition and reversal of deferred taxes.

Net Deferred Tax Assets (Liabilities)

The overall net position varies markedly from a negative balance of -150,800 thousand USD in 2016, improving to -17,200 thousand USD in 2018, before declining steeply to -693,200 thousand USD in 2020 and slightly recovering to -434,700 thousand USD in 2021. This pattern indicates significant shifts in deferred tax balances, potentially driven by tax reforms, asset impairments, or changes in underlying estimates.

The financial data reflects significant changes in the company's long-term deferred tax assets and liabilities over the six-year period from June 30, 2016, to June 30, 2021. Both items are expressed in thousands of US dollars.

Long-term deferred tax assets

These assets showed a declining trend from 2016 to 2020, decreasing from 100,300 to 38,800 thousand dollars. This represents a substantial reduction of approximately 61%. However, in 2021, there was a noted recovery with the value increasing to 48,300 thousand dollars. Overall, deferred tax assets diminished significantly, indicating reduced future tax benefits potentially available to the company during most of the period.

Long-term deferred tax liabilities

In contrast, the deferred tax liabilities experienced marked volatility. Initially, there was a sharp decrease from 251,100 thousand dollars in 2016 to 107,300 thousand dollars by 2018. However, starting in 2019, these liabilities surged dramatically, reaching a peak of 731,900 thousand dollars in 2020. This peak corresponds to more than a sixfold increase from the 2018 level. In 2021, liabilities decreased to 482,900 thousand dollars but remained substantially higher than any year prior to 2019.

The diverging movements of deferred tax assets and liabilities suggest significant changes in the company's tax position and related accounting estimates. The sharp increase in deferred tax liabilities beginning in 2019 may indicate recognition of higher future tax obligations or revision of tax planning strategies. Meanwhile, the reduction in deferred tax assets could imply diminished future tax deductions or timing differences.

The data reveals several noteworthy trends related to the financial position and performance over the examined periods.

Total Assets

Both reported and adjusted total assets generally fluctuate over the years. Total assets declined from around $43.7 billion in mid-2016 to approximately $37.0 billion by mid-2018, followed by an increase to nearly $48.7 billion by mid-2021. The adjusted assets closely mirror the reported values with slight differences but show an overall recovery and growth after 2018.

Total Liabilities

Total liabilities exhibit a decreasing trend from about $39.2 billion in mid-2016 reaching a low around $33.4 billion in mid-2020 before sharply increasing to approximately $43.1 billion by mid-2021. Adjusted liabilities follow a similar pattern but consistently remain marginally lower than reported figures. This pattern indicates a reduction in leverage or debt levels up to 2020, followed by a considerable rise in liabilities by 2021.

Stockholders’ Equity

Reported stockholders' equity demonstrates a decline from $4.48 billion in 2016 to roughly $3.46 billion in 2018, then rises significantly, peaking at $5.75 billion in 2020 before a slight reduction to $5.67 billion in 2021. Adjusted equity maintains similar movement but with slightly higher values from 2019 onwards, suggesting adjustments have a positive effect on reported equity. Overall, there is a recovery and strengthening of equity position post-2018.

Net Earnings

Reported net earnings show growth from $1.49 billion in 2016 to $2.60 billion in 2021, with a minor dip in 2018. Adjusted net earnings follow this trend, albeit with slight fluctuations; notably, there is a discrepancy in 2021 where adjusted net earnings decrease to $2.35 billion while reported earnings reach $2.60 billion. This divergence indicates adjustments affecting profitability recognition in that year. The general pattern indicates improving profitability across the period despite minor volatility.

In summary, the data illustrates initial declines in asset and equity values alongside liabilities till roughly 2018, followed by a recovery and growth phase up to 2021. Profitability steadily improved over the period with a notable adjustment impact in the final year presented. The reconciliation between reported and adjusted figures suggests consistent application of accounting adjustments that slightly affect the valuation of assets, liabilities, equity, and earnings but do not materially alter overarching financial trends.

Net Profit Margin Trends

Both reported and adjusted net profit margins exhibit fluctuations over the analyzed periods. Starting at approximately 12.8% in mid-2016, the margin increased to around 14% in 2017, declined in 2018 to about 12.2%, and then rose significantly to peak near 17% in 2020. However, the adjusted margin experiences a decline to approximately 15.6% in 2021, whereas the reported margin continues a slight upward trend to 17.3%. This indicates a divergence in 2021 between reported and adjusted profitability measures.

Total Asset Turnover

The total asset turnover ratio, both reported and adjusted, shows a generally upward movement from 0.27 in 2016 to a peak of 0.37 in 2020. There is a slight decrease to 0.31 in 2021. The alignment between reported and adjusted ratios suggests consistency in asset utilization measurement. This pattern reflects improving efficiency in asset use up to 2020, followed by some reduction in turnover in the most recent year.

Financial Leverage Patterns

Financial leverage ratios display notable variability. The reported leverage starts at about 9.74 in 2016, decreases to 9.35 in 2017, then increases sharply to 10.72 in 2018 before declining to a low of 6.81 in 2020. In 2021, it rises again to 8.6. Adjusted leverage follows a similar pattern but remains slightly lower throughout, decreasing to a low of 6.07 in 2020 and increasing to 7.98 in 2021. This volatility indicates changes in the company’s capital structure and debt reliance over time, with a general reduction in leverage around 2019-2020 and partial rebound thereafter.

Return on Equity (ROE)

Reported ROE shows a strong upward trend from 33.3% in 2016 to a peak of approximately 46.8% in 2018, then decreases slightly before stabilizing around 42.5% to 45.8% in subsequent years. Adjusted ROE also rises initially but peaks lower at 46.6% in 2018 and subsequently declines more markedly to around 38.5% by 2021. The difference between reported and adjusted ROE widens over time, suggesting the impact of tax adjustments or other factors affecting equity returns measurement.

Return on Assets (ROA)

Both reported and adjusted ROA improve from approximately 3.4% in 2016 to peaks near 6.3% and 6.4%, respectively, in 2020. However, the adjusted ROA experiences a sharper decline to 4.82% in 2021, while the reported ROA decreases more moderately to 5.33%. This pattern may indicate changes in asset profitability or the effects of deferred income tax adjustments impacting the measures differently.

Net Earnings Trends

Reported net earnings demonstrated an overall upward trend from 2016 to 2021, increasing from approximately $1.49 billion to $2.60 billion. The growth was steady with a notable acceleration beginning in 2018, culminating in the highest value in 2021.

Adjusted net earnings followed a similar trajectory, rising from approximately $1.49 billion in 2016 to a peak near $2.49 billion in 2020. However, there was a decline in 2021 to approximately $2.35 billion, indicating some adjustments impacted earnings negatively that year, contrasting with reported figures.

Net Profit Margins Analysis

Reported net profit margin showed consistent improvement over the six-year period, increasing from 12.79% in 2016 to 17.32% in 2021. This reflects enhanced profitability relative to revenue and efficient cost management.

Adjusted net profit margin mirrored the upward trend but exhibited a slight divergence in 2021, declining to 15.64% from a peak of 17.08% in 2020. This decrease suggests that adjustments in 2021 may have affected profitability ratios differently than the reported numbers.

Comparison and Insights

The close alignment between reported and adjusted net earnings and profit margins through most years indicates that deferred tax adjustments and other modifications had minimal impact on the underlying profitability trends until 2021.

The divergence in 2021 between reported and adjusted data, both in earnings and margins, points to specific factors that adjusted the net results downward relative to reported figures, potentially related to changes in tax treatment or other non-operational items affecting the adjusted calculation.

Overall, the company maintained strong growth in both earnings and profit margins over the analyzed period, with 2021 being an exception where adjustments led to a tempering of these positive trends.

Total Assets

The reported total assets exhibited a fluctuating pattern over the six-year period. Beginning at approximately $43.67 billion in mid-2016, the total assets decreased notably to about $37.18 billion by mid-2017 and remained at a similar level in 2018. Subsequently, there was an increase to roughly $41.89 billion in mid-2019. However, total assets once again declined to around $39.17 billion in mid-2020 before experiencing a substantial increase to approximately $48.77 billion in mid-2021. The adjusted total assets followed the same trend, with only marginal differences indicating the effect of adjustments related to income tax.

Total Asset Turnover

The total asset turnover ratio, both reported and adjusted, showed initial improvement from 0.27 in mid-2016 to 0.33 in mid-2017, and further increased to 0.36 in mid-2018. Following this peak, the ratio dropped slightly to 0.34 in mid-2019. It rebounded to a higher value of 0.37 in mid-2020, representing the highest turnover in the observed period. However, by mid-2021, the turnover ratio declined significantly to 0.31. The close alignment of reported and adjusted ratios suggests that deferred income tax adjustments had no material impact on asset efficiency metrics.

Insights

The overall asset base showed periods of both contraction and expansion, with a notable surge in total assets during the final year analyzed. Despite this growth in assets, the asset turnover ratio peaked prior to the largest asset increase and then decreased, indicating a possible reduction in asset utilization efficiency in the most recent year. The consistency between reported and adjusted figures suggests that tax-related adjustments did not significantly alter the financial position or operational efficiency as reflected in total assets and their turnover.

The financial data exhibits notable fluctuations in both assets and equity over the reported periods, with a corresponding impact on financial leverage ratios.

Total Assets

Both reported and adjusted total assets show a declining trend from mid-2016 through mid-2018, decreasing from approximately $43.7 billion to around $37 billion. This period is followed by an upward movement starting in mid-2019, rising to nearly $48.7 billion by mid-2021. The adjusted figures are consistently slightly lower than reported figures, likely reflecting the exclusion or adjustment for deferred income tax impacts.

Stockholders’ Equity

Stockholders’ equity, reported and adjusted, demonstrates more variability. There is a decline between 2016 and 2018, reaching a low near $3.46 billion (reported) and $3.48 billion (adjusted). Subsequently, there is a marked increase from 2018 to 2020, peaking above $6.44 billion in adjusted equity by mid-2020. The values show a minor decrease or plateau in 2021. Adjusted equity consistently exceeds reported equity, indicating adjustments that increase net equity, possibly through deferred tax considerations.

Financial Leverage

The financial leverage ratios, both reported and adjusted, reflect a generally high reliance on debt over equity but with an overall downward trend from 2016 through 2020. Leverage decreased from above 9.3 (reported) and 9.1 (adjusted) in 2016 to around 6.8 (reported) and 6.1 (adjusted) by 2020, suggesting a reduction in the company's use of financial leverage during that period. In 2021, leverage rises again to 8.6 (reported) and 7.98 (adjusted), indicating a partial reversal of the previous deleveraging trend.

General Insights

The emergence of adjusted figures alongside reported values provides clarity on the impact of deferred income tax adjustments on the company’s financial standing. The adjustments generally result in marginally lower assets and higher equity, thus reducing financial leverage ratios slightly. This suggests that deferred tax liabilities or assets have a non-trivial effect on the leverage calculated.

The financial data exhibits several notable trends across the examined periods, particularly in relation to net earnings, stockholders’ equity, and return on equity (ROE), both reported and adjusted for deferred income tax impacts.

Net Earnings

Reported net earnings demonstrate an overall increasing trend from 2016 through 2021, rising from approximately $1.49 billion in 2016 to nearly $2.60 billion in 2021. There is a slight dip evident in 2018 compared with 2017, but the trend thereafter is upward, peaking in 2021.

Adjusted net earnings closely follow the reported earnings pattern but reveal some differences in magnitude, particularly in the later years. While adjusted earnings increase through 2020, achieving about $2.49 billion, there is a noticeable decline in 2021 to approximately $2.35 billion, contrasting with the continued rise in reported earnings in that year.

Stockholders’ Equity

Reported stockholders’ equity shows a declining trend from 2016 through 2018, decreasing from roughly $4.48 billion to $3.46 billion. However, this reverses sharply in 2019 and continues rising through 2020, peaking at about $5.75 billion before slightly declining in 2021 to $5.67 billion.

The adjusted stockholders’ equity data aligns closely with reported figures but consistently records higher values across all periods. It exhibits a similar pattern of decline through 2018, followed by significant growth peaking in 2020 at $6.45 billion, and then a reduction in 2021 to $6.10 billion, mirroring the trend in reported equity but at a consistently elevated level.

Return on Equity (ROE)

Reported ROE percentages fluctuate moderately throughout the timeframe but generally remain high, ranging from 33.3% in 2016 to a peak near 46.85% in 2018. Following this peak, the ROE slightly decreases but remains above 40% through 2021, ending at 45.83%.

Adjusted ROE generally trends below the reported ROE, starting at 32.23% in 2016 and peaking at 46.63% in 2018, similar to the reported peak. However, unlike the reported ROE, adjusted ROE declines more noticeably after 2018, dropping to approximately 38.45% by 2021, indicating a more conservative measure of profitability when adjustments are considered.

Overall, the data indicates strong growth in net earnings, especially in the later years, while stockholders’ equity experiences initial contractions followed by substantial recovery and growth, with a slight tapering off in 2021. The ROE figures suggest robust profitability throughout the period, though adjusted figures imply that some of the apparent gains may be tempered when accounting for deferred income tax adjustments. The divergence between reported and adjusted net earnings and ROE in 2021 suggests the impact of tax adjustments is increasingly significant in the assessment of the company's financial performance.

The financial data reveals several notable trends over the six-year period ending June 30, 2021, in key earnings, asset, and return on assets metrics.

Net Earnings

Reported net earnings generally increased from 1,492,500 thousand US dollars in 2016 to 2,598,500 thousand US dollars in 2021, showing a positive overall growth trajectory. However, there was a decline in 2018 compared to 2017, followed by a significant recovery and continued growth until 2021. Adjusted net earnings closely track the reported figures, with a notable divergence in 2021 where adjusted earnings decreased to 2,347,400 thousand US dollars from 2,492,500 thousand US dollars in 2020, indicating some adjustments reduced the net earnings figure in that final year.

Total Assets

Reported total assets exhibited fluctuations across the period, starting at 43,670,000 thousand US dollars in 2016 and dropping to around 37 million in 2017 and 2018. This was followed by a rebound in 2019, a slight decline in 2020, and a substantial increase to 48,772,500 thousand US dollars in 2021. Adjusted total assets follow a similar pattern, consistently marginally lower than reported assets, showing that deferred tax adjustments have a small but consistent effect on asset valuation.

Return on Assets (ROA)

Both reported and adjusted ROA demonstrated an improving trend from 2016 through 2020, reaching peak levels of 6.3% and 6.37% respectively in 2020. This represents enhanced efficiency in generating earnings from assets over time. However, in 2021, reported ROA declined to 5.33%, and adjusted ROA declined more sharply to 4.82%. This decline in ROA despite increased total assets suggests diminished profitability relative to the asset base in the latest year analyzed.

Overall, the data indicate strong earnings growth through most of the period with a temporary setback in 2018 and a recent moderation in adjusted net earnings in 2021. Asset totals fluctuated but ended markedly higher, while returns on assets improved until 2020 before weakening in 2021. The adjustments for deferred income taxes appear to have a limited but noticeable impact, particularly on earnings and ROA in the most recent period.