.Analysis of Income Taxes
Difficulty: Advanced
Income Tax Accounting Policy
Income taxes are accounted for under the asset and liability method. Provisions for federal, state and foreign income taxes are calculated on reported pretax earnings based on current tax laws. Deferred taxes are provided using enacted tax rates on the future tax consequences of temporary differences, which are the differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and the tax benefits of carryforwards. A valuation allowance is established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized.
Source: AbbVie Inc., Annual Report
Income Tax Expense (Benefit)
AbbVie 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 | |
|---|---|---|---|---|---|---|
| | Domestic | |||||
| | Foreign | |||||
| | Current taxes | |||||
| | Domestic | |||||
| | Foreign | |||||
| | Deferred taxes | |||||
| | Income tax expense |
Source: Based on data from AbbVie Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Current taxes | 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. | AbbVie Inc.'s current taxes increased from 2015 to 2016 and from 2016 to 2017. |
| Deferred taxes | 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. | AbbVie Inc.'s deferred taxes declined from 2015 to 2016 and from 2016 to 2017. |
| Income tax expense | 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. | AbbVie Inc.'s income tax expense increased from 2015 to 2016 and from 2016 to 2017. |
Effective Income Tax Rate (EITR)
AbbVie Inc., effective income tax rate (EITR) reconciliation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Statutory tax rate | % | % | % | % | % |
| | Effect of foreign operations | % | % | % | % | % |
| | U.S. tax credits | % | % | % | % | % |
| | Impacts related to U.S. tax reform | % | % | % | % | % |
| | Tax law change related to foreign currency | % | % | % | % | % |
| | All other, net | % | % | % | % | % |
| | Effective tax rate | % | % | % | % | % |
Source: Based on data from AbbVie Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Effective 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. | AbbVie Inc.'s effective tax rate increased from 2015 to 2016 and from 2016 to 2017. |
Components of Deferred Tax Assets and Liabilities
AbbVie 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 | ||
|---|---|---|---|---|---|---|
| | Compensation and employee benefits | |||||
| | Accruals and reserves | |||||
| | Chargebacks and rebates | |||||
| | Deferred revenue | |||||
| | Net operating losses and other credit carryforwards | |||||
| | Other | |||||
| | Deferred tax assets | |||||
| | Valuation allowances | |||||
| | Net deferred tax assets | |||||
| | Excess of book basis over tax basis of intangible assets | |||||
| | Excess of book basis over tax basis in investments | |||||
| | Other | |||||
| | Deferred tax liabilities | |||||
| | Net deferred tax assets (liabilities) |
Source: Based on data from AbbVie Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| 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. | AbbVie Inc.'s deferred tax assets declined from 2015 to 2016 and from 2016 to 2017. |
| Net 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. | AbbVie Inc.'s net deferred tax assets declined from 2015 to 2016 and from 2016 to 2017. |
| Net deferred tax assets (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. | AbbVie Inc.'s net deferred tax assets (liabilities) declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Analyst Adjustments: Removal of Deferred Taxes
AbbVie 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 Current Assets | ||||||
| | Current assets (as reported) | |||||
| | Less: Current deferred tax assets, net | |||||
| | Current assets (adjusted) | |||||
| Adjustment to Total Assets | ||||||
| | Total assets (as reported) | |||||
| | Less: Current deferred tax assets, net | |||||
| | Total assets (adjusted) | |||||
| 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 Earnings | ||||||
| | Net earnings (as reported) | |||||
| | Add: Deferred income tax expense (benefit) | |||||
| | Net earnings (adjusted) | |||||
Adjusted Ratios: Removal of Deferred Taxes (Summary)
AbbVie Inc., adjusted ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Current Ratio | ||||||
| | Reported current ratio | |||||
| | Adjusted current ratio | |||||
| 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 current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | AbbVie Inc.'s adjusted current ratio improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | AbbVie Inc.'s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | AbbVie Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then slightly improved 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. |
AbbVie Inc.'s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | AbbVie Inc.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | AbbVie Inc.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Current Ratio
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Current assets (USD $ in millions) | |||||
| | Current liabilities (USD $ in millions) | |||||
| | Current ratio1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted current assets (USD $ in millions) | |||||
| | Adjusted current ratio2 | |||||
2017 Calculations
1 Current ratio = Current assets ÷ Current liabilities
= ÷ =
2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | AbbVie Inc.'s adjusted current ratio 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 earnings (USD $ in millions) | |||||
| | Net revenues (USD $ in millions) | |||||
| | Net profit margin1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net earnings (USD $ in millions) | |||||
| | Adjusted net profit margin2 | % | % | % | % | % |
2017 Calculations
1 Net profit margin = 100 × Net earnings ÷ Net revenues
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Net revenues
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | AbbVie Inc.'s adjusted net profit margin deteriorated from 2015 to 2016 and 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. | AbbVie Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then slightly improved 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. |
AbbVie Inc.'s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Adjusted Return on Equity (ROE)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net earnings (USD $ in millions) | |||||
| | Stockholders' equity (USD $ in millions) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net earnings (USD $ in millions) | |||||
| | Adjusted stockholders' equity (USD $ in millions) | |||||
| | Adjusted ROE2 | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net earnings ÷ Stockholders' equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted stockholders' equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | AbbVie Inc.'s adjusted ROE deteriorated from 2015 to 2016 and 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 earnings (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net earnings (USD $ in millions) | |||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net earnings ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | AbbVie Inc.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017. |
