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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
- Deferred Tax Assets and Liabilities, Classification
- Analyst Adjustments: Removal of Deferred Taxes
- Adjusted Ratios: Removal of Deferred Taxes (Summary)
- Adjusted Current Ratio
- Adjusted Net Profit Margin
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Income Tax Accounting Policy
Starbucks computes income taxes using the asset and liability method, under which deferred income taxes are recognized based on the differences between the financial statement carrying amounts and the respective tax basis of the assets and liabilities. Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable income in the years in which Starbucks expects the temporary differences to reverse. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date.
Starbucks routinely evaluates the likelihood of realizing the benefit of the deferred tax assets and may record a valuation allowance if, based on all available evidence, Starbucks determines that some portion of the tax benefit will not be realized. In evaluating the ability to recover the deferred tax assets within the jurisdictions from which they arise, Starbucks considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. If Starbucks determines that Starbucks would be able to realize the deferred tax assets in the future in excess of their net recorded amount, Starbucks would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
In addition, Starbucks’ income tax returns are periodically audited by domestic and foreign tax authorities. These audits include review of Starbucks’ tax filing positions, including the timing and amount of deductions taken and the allocation of income between tax jurisdictions. Starbucks evaluates the exposures associated with the various tax filing positions and recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. For uncertain tax positions that do not meet this threshold, Starbucks records a related liability. Starbucks adjusts the unrecognized tax benefit liability and income tax expense in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available.
Starbucks recognizes interest and penalties related to income tax matters in income tax expense on the consolidated statements of earnings. Accrued interest and penalties are included within the related tax liability on Starbucks’ consolidated balance sheets.
Source: 10-K (filing date: 2018-11-16).
Income Tax Expense (Benefit)
Starbucks Corp., income tax expense (benefit), continuing operations
USD $ in thousands
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
| Item | Description | The company |
|---|---|---|
| Current taxes | Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. | Starbucks Corp.’s current taxes increased from 2016 to 2017 but then declined significantly from 2017 to 2018. |
| Deferred taxes | Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. | Starbucks Corp.’s deferred taxes declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
| Income tax expense (benefit) | Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. | Starbucks Corp.’s income tax expense (benefit) increased from 2016 to 2017 but then declined significantly from 2017 to 2018. |
Effective Income Tax Rate (EITR)
Starbucks Corp., effective income tax rate (EITR) reconciliation
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
| 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. | Starbucks Corp.’s effective income tax rate increased from 2016 to 2017 but then declined significantly from 2017 to 2018. |
Components of Deferred Tax Assets and Liabilities
Starbucks Corp., components of deferred tax assets and liabilities
USD $ in thousands
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
| Item | Description | The company |
|---|---|---|
| Deferred tax assets | Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. | Starbucks Corp.’s deferred tax assets declined from 2016 to 2017 and from 2017 to 2018. |
| Deferred tax asset, net of valuation allowance | Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. | Starbucks Corp.’s deferred tax asset, net of valuation allowance declined from 2016 to 2017 and from 2017 to 2018. |
| Net deferred tax asset (liability) | Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. | Starbucks Corp.’s net deferred tax asset (liability) declined from 2016 to 2017 and from 2017 to 2018. |
Deferred Tax Assets and Liabilities, Classification
Starbucks Corp., deferred tax assets and liabilities, classification
USD $ in thousands
| Sep 30, 2018 | Oct 1, 2017 | Oct 2, 2016 | Sep 27, 2015 | Sep 28, 2014 | Sep 29, 2013 | ||
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| Long-term deferred income tax assets | |
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| Current deferred income tax liabilities (included in Accrued liabilities) | |
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| Long-term deferred income tax liabilities (included in Other long-term liabilities) | |
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Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
| Item | Description | The company |
|---|---|---|
| Long-term deferred income tax 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. | Starbucks Corp.’s long-term deferred income tax assets declined from 2016 to 2017 and from 2017 to 2018. |
| Long-term deferred income tax liabilities (included in Other long-term liabilities) | Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. | Starbucks Corp.’s long-term deferred income tax liabilities (included in Other long-term liabilities) declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
Analyst Adjustments: Removal of Deferred Taxes
Starbucks Corp., adjustments to financial data
USD $ in thousands
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
Starbucks Corp., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Starbucks Corp., adjusted ratios
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | Starbucks 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. | Starbucks Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Starbucks Corp.’s adjusted total asset turnover 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. |
Starbucks Corp.’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. | Starbucks Corp.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Starbucks Corp.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018. |
Starbucks Corp., Ratios: Reported vs. Adjusted
Adjusted Current Ratio
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
2018 Calculations
1 Current ratio = Current assets ÷ Current liabilities
= ÷ =
2 Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | Starbucks Corp.’s adjusted current ratio improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Net Profit Margin
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
2018 Calculations
1 Net profit margin = 100 × Net earnings attributable to Starbucks ÷ Net revenues
= 100 × ÷ =
2 Adjusted net profit margin = 100 × Adjusted net earnings attributable to Starbucks ÷ Net revenues
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Starbucks Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level. |
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
2018 Calculations
1 Total asset turnover = Net revenues ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net revenues ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Starbucks Corp.’s adjusted total asset turnover improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
2018 Calculations
1 Financial leverage = Total assets ÷ Shareholders’ equity
= ÷ =
2 Adjusted financial leverage = Adjusted 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. |
Starbucks Corp.’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: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
2018 Calculations
1 ROE = 100 × Net earnings attributable to Starbucks ÷ Shareholders’ equity
= 100 × ÷ =
2 Adjusted ROE = 100 × Adjusted net earnings attributable to Starbucks ÷ Adjusted shareholders’ equity
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. | Starbucks Corp.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2018-11-16), 10-K (filing date: 2017-11-17), 10-K (filing date: 2016-11-18), 10-K (filing date: 2015-11-12), 10-K (filing date: 2014-11-14), 10-K (filing date: 2013-11-18).
2018 Calculations
1 ROA = 100 × Net earnings attributable to Starbucks ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Adjusted net earnings attributable to Starbucks ÷ Adjusted total assets
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Starbucks Corp.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018. |
