Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Facebook Inc. (NASDAQ:FB)

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Analysis of Income Taxes

Advanced level


Accounting Policy on Income Taxes

Facebook is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining Facebook’s provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

Facebook records a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, Facebook recognizes deferred income tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Facebook recognizes the deferred income tax effects of a change in tax rates in the period of the enactment.

Facebook records a valuation allowance to reduce the deferred tax assets to the net amount that Facebook believes is more likely than not to be realized. Facebook considers all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance.

Facebook recognizes tax benefits from uncertain tax positions only if Facebook believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. These uncertain tax positions include Facebook’s estimates for transfer pricing that have been developed based upon analyses of appropriate arms-length prices. Similarly, Facebook’s estimates related to uncertain tax positions concerning research tax credits are based on an assessment of whether the available documentation corroborating the nature of the activities supporting the tax credits will be sufficient. Although Facebook believes that Facebook has adequately reserved for the uncertain tax positions (including net interest and penalties), Facebook can provide no assurance that the final tax outcome of these matters will not be materially different. Facebook makes adjustments to these reserves in accordance with the income tax guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on Facebook’s financial condition and operating results.

Source: 10-K (filing date: 2020-01-30).


Income Tax Expense (Benefit)

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

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended: Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Federal
State
Foreign
Current tax expense
Federal
State
Foreign
Deferred tax expense (benefits)
Provision for income taxes

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

Item Description The company
Current tax expense Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Facebook Inc.’s current tax expense decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.
Deferred tax expense (benefits) Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Facebook Inc.’s deferred tax expense (benefits) increased from 2017 to 2018 but then slightly decreased 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. Facebook Inc.’s provision for income taxes decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Effective Income Tax Rate (EITR)

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

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
U.S. federal statutory income tax rate
State income taxes, net of federal benefit
Research tax credits
Share-based compensation
Excess tax benefits related to share-based compensation
Effect of non-U.S. operations
Non-deductible FTC settlement accrual
Other
Effective tax rate, before effect of U.S. tax law change
Effect of U.S. tax law change
Effective tax rate

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

Item Description The company
Effective tax rate, before effect of U.S. tax law change Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Facebook Inc.’s effective tax rate, before effect of U.S. tax law change increased from 2017 to 2018 and from 2018 to 2019.

Components of Deferred Tax Assets and Liabilities

Facebook Inc., components of deferred tax assets and liabilities

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Net operating loss carryforward
Tax credit carryforward
Share-based compensation
Accrued expenses and other liabilities
Lease liabilities
Other
Deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Depreciation and amortization
Right-of-use assets
Purchased intangible assets
Deferred taxes on foreign income
Deferred tax liabilities
Net deferred tax assets (liabilities)

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

Item Description The company
Deferred tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Facebook Inc.’s deferred tax assets increased from 2017 to 2018 and from 2018 to 2019.
Deferred tax assets, net of valuation allowance Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Facebook Inc.’s deferred tax assets, net of valuation allowance increased from 2017 to 2018 and 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. Facebook Inc.’s net deferred tax assets (liabilities) decreased from 2017 to 2018 and from 2018 to 2019.

Adjustments to Financial Statements: Removal of Deferred Taxes

Facebook Inc., adjustments to financial statements

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
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: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).


Facebook Inc., Financial Data: Reported vs. Adjusted


Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Facebook Inc., adjusted financial ratios

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Net Profit Margin
Reported net profit margin
Adjusted net profit margin
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: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

Financial ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Facebook Inc.’s adjusted net profit margin ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
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.
Facebook Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Facebook Inc.’s adjusted ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Facebook Inc.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Facebook Inc., Financial Ratios: Reported vs. Adjusted


Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income
Revenue
Profitability Ratio
Net profit margin1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income
Revenue
Profitability Ratio
Adjusted net profit margin2

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

2019 Calculations

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

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

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

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Total assets
Stockholders’ equity
Solvency Ratio
Financial leverage1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Total assets
Adjusted stockholders’ equity
Solvency Ratio
Adjusted financial leverage2

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

2019 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity
= ÷ =

2 Adjusted financial leverage = Total assets ÷ Adjusted stockholders’ equity
= ÷ =

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.
Facebook Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income
Stockholders’ equity
Profitability Ratio
ROE1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income
Adjusted stockholders’ equity
Profitability Ratio
Adjusted ROE2

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

2019 Calculations

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

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

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

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income
Total assets
Profitability Ratio
ROA1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income
Total assets
Profitability Ratio
Adjusted ROA2

Based on: 10-K (filing date: 2020-01-30), 10-K (filing date: 2019-01-31), 10-K (filing date: 2018-02-01), 10-K (filing date: 2017-02-03), 10-K (filing date: 2016-01-28).

2019 Calculations

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

2 Adjusted ROA = 100 × Adjusted net income ÷ Total assets
= 100 × ÷ =

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