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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

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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.

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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.

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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.

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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)

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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