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Microsoft Excel LibreOffice Calc


Analysis of Income Taxes

Difficulty: Advanced


Income Tax Accounting Policy

Income tax expense includes U.S. and international income taxes, and interest and penalties on uncertain tax positions. Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a valuation allowance when it is more likely than not that a tax benefit will not be realized. All deferred income taxes are classified as long-term in Microsoft’s consolidated balance sheets.

Source: 10-K (filing date: 2018-08-03).


Income Tax Expense (Benefit)

Microsoft Corp., income tax expense (benefit), continuing operations

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
U.S. federal hidden hidden hidden hidden hidden hidden
U.S. state and local hidden hidden hidden hidden hidden hidden
Foreign hidden hidden hidden hidden hidden hidden
Current taxes hidden hidden hidden hidden hidden hidden
U.S. federal hidden hidden hidden hidden hidden hidden
U.S. state and local hidden hidden hidden hidden hidden hidden
Foreign hidden hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden hidden
Deferred taxes hidden hidden hidden hidden hidden hidden
Provision for income taxes hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

Item Description The company
Current taxes Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Microsoft Corp.’s current taxes increased from 2016 to 2017 and from 2017 to 2018.
Deferred taxes Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Microsoft Corp.’s deferred taxes declined from 2016 to 2017 and 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. Microsoft Corp.’s provision for income taxes declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Effective Income Tax Rate (EITR)

Microsoft Corp., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
Federal statutory tax rate hidden hidden hidden hidden hidden hidden
Foreign earnings taxed at lower rates hidden hidden hidden hidden hidden hidden
Impacts of TCJA hidden hidden hidden hidden hidden hidden
Phone business losses hidden hidden hidden hidden hidden hidden
Excess tax benefits relating to stock-based compensation hidden hidden hidden hidden hidden hidden
Domestic production activities deduction hidden hidden hidden hidden hidden hidden
Interest, net hidden hidden hidden hidden hidden hidden
Other reconciling items, net hidden hidden hidden hidden hidden hidden
Effective tax rate hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

Item Description The company
Effective tax rate Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Microsoft Corp.’s effective tax rate declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Components of Deferred Tax Assets and Liabilities

Microsoft Corp., components of deferred tax assets and liabilities

USD $ in millions

Microsoft Excel LibreOffice Calc
Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
Stock-based compensation expense hidden hidden hidden hidden hidden hidden
Accruals, reserves, and other expenses hidden hidden hidden hidden hidden hidden
Other expense items hidden hidden hidden hidden hidden hidden
Restructuring charges hidden hidden hidden hidden hidden hidden
Unearned revenue hidden hidden hidden hidden hidden hidden
Impaired investments hidden hidden hidden hidden hidden hidden
Loss and credit carryforwards hidden hidden hidden hidden hidden hidden
Depreciation and amortization hidden hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden hidden
Deferred income tax assets hidden hidden hidden hidden hidden hidden
Valuation allowance hidden hidden hidden hidden hidden hidden
Deferred income tax assets, net of valuation allowance hidden hidden hidden hidden hidden hidden
Foreign earnings hidden hidden hidden hidden hidden hidden
Unrealized gain on investments and debt hidden hidden hidden hidden hidden hidden
Unearned revenue hidden hidden hidden hidden hidden hidden
Depreciation and amortization hidden hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden hidden
Deferred income tax liabilities hidden hidden hidden hidden hidden hidden
Net deferred income tax assets (liabilities) hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

Item Description The company
Deferred income tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Microsoft Corp.’s deferred income tax assets increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.
Deferred income tax assets, net of valuation allowance Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Microsoft Corp.’s deferred income tax assets, net of valuation allowance increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Net deferred income 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. Microsoft Corp.’s net deferred income tax assets (liabilities) increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Deferred Tax Assets and Liabilities, Classification

Microsoft Corp., deferred tax assets and liabilities, classification

USD $ in millions

Microsoft Excel LibreOffice Calc

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

Item Description The company
Long-term deferred income tax assets (included in Other long-term assets) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent. Microsoft Corp.’s long-term deferred income tax assets (included in Other long-term assets) increased from 2016 to 2017 but then slightly declined from 2017 to 2018.
Long-term deferred income tax liabilities Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. Microsoft Corp.’s long-term deferred income tax liabilities declined from 2016 to 2017 but then slightly increased from 2017 to 2018.

Analyst Adjustments: Removal of Deferred Taxes

Microsoft Corp., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
Adjustment to Current Assets
Current assets (as reported) hidden hidden hidden hidden hidden hidden
Less: Current deferred tax assets, net hidden hidden hidden hidden hidden hidden
Current assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden hidden
Less: Current deferred tax assets, net hidden hidden hidden hidden hidden hidden
Less: Noncurrent deferred tax assets, net hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Current Liabilities
Current liabilities (as reported) hidden hidden hidden hidden hidden hidden
Less: Current deferred tax liabilities, net hidden hidden hidden hidden hidden hidden
Current liabilities (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Total Liabilities
Total liabilities (as reported) hidden hidden hidden hidden hidden hidden
Less: Current deferred tax liabilities, net hidden hidden hidden hidden hidden hidden
Less: Noncurrent deferred tax liabilities, net hidden hidden hidden hidden hidden hidden
Total liabilities (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Stockholders’ Equity
Stockholders’ equity (as reported) hidden hidden hidden hidden hidden hidden
Less: Net deferred tax assets (liabilities) hidden hidden hidden hidden hidden hidden
Stockholders’ equity (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Net Income
Net income (as reported) hidden hidden hidden hidden hidden hidden
Add: Deferred income tax expense (benefit) hidden hidden hidden hidden hidden hidden
Net income (adjusted) hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).


Microsoft Corp., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Deferred Taxes (Summary)

Microsoft Corp., adjusted ratios

Microsoft Excel LibreOffice Calc
Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
Current Ratio
Reported current ratio hidden hidden hidden hidden hidden hidden
Adjusted current ratio hidden hidden hidden hidden hidden hidden
Net Profit Margin
Reported net profit margin hidden hidden hidden hidden hidden hidden
Adjusted net profit margin hidden hidden hidden hidden hidden hidden
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Microsoft Corp.’s adjusted current ratio improved from 2016 to 2017 and from 2017 to 2018.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Microsoft Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Microsoft Corp.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 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.
Microsoft Corp.’s adjusted financial leverage increased from 2016 to 2017 but then slightly declined from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Microsoft Corp.’s adjusted ROE improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Microsoft Corp.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018.

Microsoft Corp., Ratios: Reported vs. Adjusted


Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
As Reported
Selected Financial Data (USD $ in millions)
Current assets hidden hidden hidden hidden hidden hidden
Current liabilities hidden hidden hidden hidden hidden hidden
Ratio
Current ratio1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted current assets hidden hidden hidden hidden hidden hidden
Adjusted current liabilities hidden hidden hidden hidden hidden hidden
Ratio
Adjusted current ratio2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

2018 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

2 Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Microsoft Corp.’s adjusted current ratio improved from 2016 to 2017 and from 2017 to 2018.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income hidden hidden hidden hidden hidden hidden
Revenue hidden hidden hidden hidden hidden hidden
Ratio
Net profit margin1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income hidden hidden hidden hidden hidden hidden
Revenue hidden hidden hidden hidden hidden hidden
Ratio
Adjusted net profit margin2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

2018 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

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Microsoft Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
As Reported
Selected Financial Data (USD $ in millions)
Revenue hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Revenue hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

2018 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Microsoft Corp.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
As Reported
Selected Financial Data (USD $ in millions)
Total assets hidden hidden hidden hidden hidden hidden
Stockholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted total assets hidden hidden hidden hidden hidden hidden
Adjusted stockholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

2018 Calculations

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

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= hidden ÷ hidden = hidden

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.
Microsoft Corp.’s adjusted financial leverage increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income hidden hidden hidden hidden hidden hidden
Stockholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income hidden hidden hidden hidden hidden hidden
Adjusted stockholders’ equity hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

2018 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

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Microsoft Corp.’s adjusted ROE improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014 Jun 30, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-02), 10-K (filing date: 2016-07-28), 10-K (filing date: 2015-07-31), 10-K (filing date: 2014-07-31), 10-K (filing date: 2013-07-30).

2018 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

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Microsoft Corp.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018.