.Analysis of Income Taxes
Difficulty: Advanced
Income Tax Accounting Policy
eBay accounts for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence.
eBay reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. eBay recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
eBay has accounted for the tax effects of The Tax Cuts and Jobs Act, enacted on December 22, 2017, on a provisional basis. The accounting for certain income tax effects is incomplete, but eBay has determined reasonable estimates for those effects. eBay's reasonable estimates are included in the financial statements as of December 31, 2017. eBay expects to complete the accounting during the one year measurement period from the enactment date.
Source: eBay Inc., Annual Report
Income Tax Expense (Benefit)
eBay Inc., income tax expense (benefit), continuing operations
USD $ in millions
| 12 months ended | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | |
|---|---|---|---|---|---|---|
| | Federal | |||||
| | State and local | |||||
| | Foreign | |||||
| | Current | |||||
| | Federal | |||||
| | State and local | |||||
| | Foreign | |||||
| | Deferred | |||||
| | Provision (benefit) for income taxes |
Source: Based on data from eBay Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Current | The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. | eBay Inc.'s current increased from 2015 to 2016 and from 2016 to 2017. |
| Deferred | The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. | eBay Inc.'s deferred declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
| Provision (benefit) for income taxes | The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. | eBay Inc.'s provision (benefit) for income taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Effective Income Tax Rate (EITR)
eBay Inc., effective income tax rate (EITR) reconciliation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Federal statutory tax rate | % | % | % | % | % |
| | Effective income tax rate | % | % | % | % | % |
Source: Based on data from eBay Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Effective income tax rate | A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. | eBay Inc.'s effective income tax rate declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Components of Deferred Tax Assets and Liabilities
eBay Inc., components of deferred tax assets and liabilities
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Net operating loss, capital loss and credits | |||||
| | Accruals and allowances | |||||
| | Stock-based compensation | |||||
| | Amortizable tax basis in intangibles | |||||
| | Net unrealized losses | |||||
| | Net deferred tax assets | |||||
| | Valuation allowance | |||||
| | Deferred tax assets | |||||
| | Unremitted foreign earnings | |||||
| | Acquisition-related intangibles | |||||
| | Depreciation and amortization | |||||
| | Available-for-sale securities | |||||
| | Other | |||||
| | Deferred tax liabilities | |||||
| | Net deferred tax assets and liabilities |
Source: Based on data from eBay Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Net deferred tax assets | The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. | eBay Inc.'s net deferred tax assets increased from 2015 to 2016 and from 2016 to 2017. |
| Deferred tax assets | The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. | eBay Inc.'s deferred tax assets increased from 2015 to 2016 and from 2016 to 2017. |
| Net deferred tax assets and liabilities | For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. | eBay Inc.'s net deferred tax assets and liabilities increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
Analyst Adjustments: Removal of Deferred Taxes
eBay Inc., adjustments to financial data
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Adjustment to Total Assets | ||||||
| | Total assets (as reported) | |||||
| | Less: Noncurrent deferred tax assets, net | |||||
| | Total assets (adjusted) | |||||
| Adjustment to Stockholders' Equity | ||||||
| | Stockholders' equity (as reported) | |||||
| | Less: Net deferred tax assets (liabilities) | |||||
| | Stockholders' equity (adjusted) | |||||
| Adjustment to Net Income (loss) | ||||||
| | Net income (loss) (as reported) | |||||
| | Add: Deferred income tax expense (benefit) | |||||
| | Net income (loss) (adjusted) | |||||
Adjusted Ratios: Removal of Deferred Taxes (Summary)
eBay Inc., adjusted ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Net Profit Margin | ||||||
| | Reported net profit margin | % | % | % | % | % |
| | Adjusted net profit margin | % | % | % | % | % |
| Total Asset Turnover | ||||||
| | Reported total asset turnover | |||||
| | Adjusted total asset turnover | |||||
| Financial Leverage | ||||||
| | Reported financial leverage | |||||
| | Adjusted financial leverage | |||||
| Return on Equity (ROE) | ||||||
| | Reported ROE | % | % | % | % | % |
| | Adjusted ROE | % | % | % | % | % |
| Return on Assets (ROA) | ||||||
| | Reported ROA | % | % | % | % | % |
| | Adjusted ROA | % | % | % | % | % |
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | eBay Inc.'s adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | eBay Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
| 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. |
eBay Inc.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | eBay Inc.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | eBay Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Net Profit Margin
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) (USD $ in millions) | |||||
| | Net revenues (USD $ in millions) | |||||
| | Net profit margin1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) (USD $ in millions) | |||||
| | Adjusted net profit margin2 | % | % | % | % | % |
2017 Calculations
1 Net profit margin = 100 × Net income (loss) ÷ Net revenues
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net income (loss) ÷ Net revenues
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | eBay Inc.'s adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Total Asset Turnover
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net revenues (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | Total asset turnover1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted total asset turnover2 | |||||
2017 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. | eBay Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Financial Leverage
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Total assets (USD $ in millions) | |||||
| | Stockholders' equity (USD $ in millions) | |||||
| | Financial leverage1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted stockholders' equity (USD $ in millions) | |||||
| | Adjusted financial leverage2 | |||||
2017 Calculations
1 Financial leverage = Total assets ÷ Stockholders' equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders' 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. |
eBay Inc.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Equity (ROE)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) (USD $ in millions) | |||||
| | Stockholders' equity (USD $ in millions) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) (USD $ in millions) | |||||
| | Adjusted stockholders' equity (USD $ in millions) | |||||
| | Adjusted ROE2 | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net income (loss) ÷ Stockholders' equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net income (loss) ÷ Adjusted stockholders' equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | eBay Inc.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Return on Assets (ROA)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (loss) (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income (loss) (USD $ in millions) | |||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income (loss) ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net income (loss) ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | eBay Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
