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Income Tax Accounting Policy

Deferred income taxes are provided for the tax effect of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at the enacted statutory rate to be in effect when the taxes are paid. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax related to the U.S. Tax Cuts and Jobs Act, or any additional outside basis differences that exist, as these amounts continue to be indefinitely reinvested in foreign operations. Interest and penalties on income tax obligations are included in taxes on income.

Source: Abbott Laboratories, Annual Report

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Income Tax Expense (Benefit)

Abbott Laboratories, 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
Domestic
Foreign
Deferred
Taxes on earnings from continuing operations

Source: Based on data from Abbott Laboratories 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. Abbott Laboratories'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. Abbott Laboratories's deferred declined from 2015 to 2016 and from 2016 to 2017.
Taxes on earnings from continuing operations 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. Abbott Laboratories's taxes on earnings from continuing operations declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Effective Income Tax Rate (EITR)

Abbott Laboratories, effective income tax rate (EITR) reconciliation

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Statutory tax rate on earnings from continuing operations % % % % %
Impact of foreign operations % % % % %
Impact of TCJA % % % % %
Excess tax benefits related to stock compensation % % % % %
Research tax credit % % % % %
Resolution of certain tax positions pertaining to prior years % % % % %
Mylan share adjustment % % % % %
Effect of retroactive legislation % % % % %
State taxes, net of federal benefit % % % % %
Federal tax cost on sale of Mylan N.V. shares % % % % %
All other, net % % % % %
Effective tax rate on earnings from continuing operations % % % % %

Source: Based on data from Abbott Laboratories Annual Reports

Item Description The company
Effective tax rate on earnings from continuing operations 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. Abbott Laboratories's effective tax rate on earnings from continuing operations increased from 2015 to 2016 and from 2016 to 2017.

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Components of Deferred Tax Assets and Liabilities

Abbott Laboratories, 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
Other, primarily reserves not currently deductible, and NOL's and credit carryforwards
Trade receivable reserves
Inventory reserves
Deferred intercompany profit
State income taxes
Deferred tax assets before valuation allowance
Valuation allowance
Deferred tax assets
Depreciation
Unremitted earnings of foreign subsidiaries
Other, primarily the excess of book basis over tax basis of intangible assets
Deferred tax liabilities
Net deferred tax assets (liabilities)

Source: Based on data from Abbott Laboratories Annual Reports

Item Description The company
Deferred tax assets before valuation allowance 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. Abbott Laboratories's deferred tax assets before valuation allowance declined from 2015 to 2016 but then slightly increased 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. Abbott Laboratories's 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. Abbott Laboratories's net deferred tax assets (liabilities) increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

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Analyst Adjustments: Removal of Deferred Taxes

Abbott Laboratories, 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 Total Abbott Shareholders' Investment
Total Abbott shareholders' investment (as reported)
Less: Net deferred tax assets (liabilities)
Total Abbott shareholders' investment (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)

Abbott Laboratories, 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. Abbott Laboratories's adjusted current ratio improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Abbott Laboratories'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. Abbott Laboratories'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.
Abbott Laboratories's adjusted financial leverage increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Abbott Laboratories'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. Abbott Laboratories'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. Abbott Laboratories's adjusted current ratio improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.

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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 sales (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 sales
= 100 × ÷ = %

2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Net sales
= 100 × ÷ = %

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Abbott Laboratories'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 sales (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 sales ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= ÷ =

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Abbott Laboratories's adjusted total asset turnover deteriorated from 2015 to 2016 and 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)
Total Abbott shareholders' investment (USD $ in millions)
Financial leverage1
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions)
Adjusted total Abbott shareholders' investment (USD $ in millions)
Adjusted financial leverage2

2017 Calculations

1 Financial leverage = Total assets ÷ Total Abbott shareholders' investment
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Abbott shareholders' investment
= ÷ =

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.
Abbott Laboratories's adjusted financial leverage increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 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)
Total Abbott shareholders' investment (USD $ in millions)
ROE1 % % % % %
Adjusted for Deferred Taxes
Adjusted net earnings (USD $ in millions)
Adjusted total Abbott shareholders' investment (USD $ in millions)
Adjusted ROE2 % % % % %

2017 Calculations

1 ROE = 100 × Net earnings ÷ Total Abbott shareholders' investment
= 100 × ÷ = %

2 Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted total Abbott shareholders' investment
= 100 × ÷ = %

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Abbott Laboratories'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. Abbott Laboratories's adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.

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