Baxter International Inc. (NYSE:BAX)

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Baxter International Inc., effective income tax rate (EITR) reconciliation

		Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
	U.S. federal statutory rate	35.00%	35.00%	35.00%	35.00%	35.00%
	Effective income tax rate	8.20%	20.20%	21.00%	20.00%	20.00%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

The analysis of the effective income tax rate (EITR) relative to the U.S. federal statutory rate reveals a period of relative stability followed by a sharp contraction in the final year of the observed period.

Statutory Rate Benchmark: The U.S. federal statutory rate remained constant at 35.00% from 2011 through 2015, serving as a fixed baseline for measuring tax efficiency and the impact of tax adjustments.
Period of Stability (2011-2014): Between 2011 and 2014, the EITR demonstrated minimal fluctuation, remaining within a tight range of 20.00% to 21.00%. This indicates a consistent tax profile and a steady utilization of tax credits or foreign earnings exclusions during this interval.
Significant Rate Reduction in 2015: A substantial decline in the EITR is observed in 2015, where the rate dropped to 8.20%. This represents a decrease of 12.00 percentage points compared to the 2014 rate, signaling a major shift in the company's tax position.
Analysis of Statutory Variance: The EITR remained consistently and significantly below the statutory rate throughout the five-year period. While the variance was approximately 14 to 15 percentage points between 2011 and 2014, it widened drastically to 26.80 percentage points in 2015, suggesting an increase in the impact of deferred tax assets, tax-exempt income, or favorable jurisdictional tax shifts.

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Baxter International Inc., components of deferred tax assets and liabilities

US$ in millions

	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Accrued expenses	389)	642)	426)	171)	251)
Retirement benefits	352)	898)	669)	804)	658)
Alternative minimum tax credit	—)	—)	—)	—)	54)
Tax credits and net operating losses	547)	369)	426)	169)	198)
Deferred tax assets, gross	1,288)	1,909)	1,521)	1,144)	1,161)
Valuation allowances	(135)	(137)	(137)	(104)	(116)
Deferred tax assets	1,153)	1,772)	1,384)	1,040)	1,045)
Subsidiaries’ unremitted earnings	(147)	(208)	(265)	(222)	(211)
Asset basis differences	(847)	(1,011)	(849)	(294)	(270)
Deferred tax liabilities	(994)	(1,219)	(1,114)	(516)	(481)
Net deferred tax asset (liability)	159)	553)	270)	524)	564)

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

The net deferred tax position experienced significant volatility between 2011 and 2015, shifting from a net asset of 564 million US dollars in 2011 to 159 million US dollars by the end of 2015. This overall decline is the result of fluctuating gross deferred tax assets and a substantial increase in deferred tax liabilities during the middle of the period.

Gross Deferred Tax Assets: Gross deferred tax assets showed a general upward trajectory from 2011 to 2014, peaking at 1,909 million US dollars before declining to 1,288 million US dollars in 2015. This volatility was primarily driven by fluctuations in retirement benefits and accrued expenses. Retirement benefits reached a peak of 898 million US dollars in 2014 but dropped sharply to 352 million US dollars in 2015. Similarly, accrued expenses peaked in 2014 at 642 million US dollars before receding to 389 million US dollars. Conversely, tax credits and net operating losses demonstrated a growth trend, increasing from 198 million US dollars in 2011 to 547 million US dollars in 2015.
Valuation Allowances: Valuation allowances remained relatively stable throughout the five-year period, ranging between 104 million and 137 million US dollars. The consistency of these allowances suggests a stable corporate assessment regarding the realizability of the gross deferred tax assets.
Deferred Tax Liabilities: Deferred tax liabilities increased substantially from 481 million US dollars in 2011 to a peak of 1,219 million US dollars in 2014, before moderating to 994 million US dollars in 2015. The primary driver of this increase was asset basis differences, which expanded from 270 million US dollars in 2011 to 1,011 million US dollars in 2014. In contrast, liabilities associated with subsidiaries' unremitted earnings showed a downward trend, decreasing from a peak of 265 million US dollars in 2013 to 147 million US dollars by 2015.
Net Deferred Tax Position: The net deferred tax asset reached its lowest point in 2013 at 270 million US dollars, coinciding with a sharp increase in asset basis differences. While a recovery occurred in 2014, the position weakened again in 2015 to 159 million US dollars, driven by the combined effect of decreasing gross deferred tax assets and a persistent liability balance relative to 2011 levels.

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Baxter International Inc., deferred tax assets and liabilities, classification

US$ in millions

	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Current deferred tax assets	—)	501)	393)	344)	295)
Noncurrent deferred tax assets	354)	273)	876)	1,156)	1,123)
Current deferred tax liabilities	—)	9)	760)	878)	738)
Noncurrent deferred tax liabilities	195)	212)	239)	98)	116)

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

The analysis of deferred tax positions reveals a significant restructuring of both assets and liabilities between 2011 and 2014, characterized by a shift in classification and a reduction in total deferred tax liabilities.

Deferred Tax Assets: Current deferred tax assets exhibited a consistent upward trend, growing from 295 million US dollars in 2011 to 501 million US dollars by 2014. Conversely, noncurrent deferred tax assets experienced a substantial decline, peaking at 1,156 million US dollars in 2012 before dropping sharply to 273 million US dollars in 2014, followed by a slight recovery to 354 million US dollars in 2015. This divergence suggests a migration of tax benefit realizations from long-term to short-term horizons.
Deferred Tax Liabilities: A notable contraction occurred within current deferred tax liabilities, which decreased from a high of 878 million US dollars in 2012 to 9 million US dollars in 2014. Noncurrent deferred tax liabilities remained relatively more stable, though they saw an increase from 116 million US dollars in 2011 to a range between 195 and 239 million US dollars from 2013 through 2015.
Net Tax Position and Classification: The overall tax profile indicates a significant reduction in total deferred tax liabilities by 2014, primarily driven by the near-elimination of current liabilities. The simultaneous increase in current deferred tax assets suggests an improved short-term tax position, while the volatility in noncurrent assets indicates changes in long-term taxable temporary differences or valuation allowances.

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Baxter International Inc., Financial Data: Reported vs. Adjusted

Baxter International Inc., adjustments to financial statements

US$ in millions

	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Adjustment to Current Assets
Current assets (as reported)	11,796)	10,351)	10,004)	9,260)	8,650)
Less: Current deferred tax assets, net	—)	501)	393)	344)	295)
Current assets (adjusted)	11,796)	9,850)	9,611)	8,916)	8,355)
Adjustment to Total Assets
Total assets (as reported)	20,975)	25,917)	25,869)	20,390)	19,073)
Less: Current deferred tax assets, net	—)	501)	393)	344)	295)
Less: Noncurrent deferred tax assets, net	354)	273)	876)	1,156)	1,123)
Total assets (adjusted)	20,621)	25,143)	24,600)	18,890)	17,655)
Adjustment to Current Liabilities
Current liabilities (as reported)	5,750)	6,042)	5,906)	4,759)	4,857)
Less: Current deferred tax liabilities, net	—)	9)	760)	878)	738)
Current liabilities (adjusted)	5,750)	6,033)	5,146)	3,881)	4,119)
Adjustment to Total Liabilities
Total liabilities (as reported)	12,110)	17,761)	17,383)	13,412)	12,245)
Less: Current deferred tax liabilities, net	—)	9)	760)	878)	738)
Less: Noncurrent deferred tax liabilities, net	195)	212)	239)	98)	116)
Total liabilities (adjusted)	11,915)	17,540)	16,384)	12,436)	11,391)
Adjustment to Total Baxter Shareholders’ Equity
Total Baxter shareholders’ equity (as reported)	8,846)	8,120)	8,463)	6,938)	6,585)
Less: Net deferred tax assets (liabilities)	159)	553)	270)	524)	564)
Total Baxter shareholders’ equity (adjusted)	8,687)	7,567)	8,193)	6,414)	6,021)
Adjustment to Net Income Attributable To Baxter
Net income attributable to Baxter (as reported)	968)	2,497)	2,012)	2,326)	2,224)
Add: Deferred income tax expense (benefit)	(53)	(78)	(224)	(17)	172)
Net income attributable to Baxter (adjusted)	915)	2,419)	1,788)	2,309)	2,396)

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

An analysis of the financial statements from 2011 to 2015 reveals a consistent discrepancy between reported and adjusted figures, stemming from the removal of deferred taxes. A general trend of growth in assets and equity is observed through 2014, followed by a notable contraction in total assets and liabilities in 2015. The impact of deferred tax adjustments was most pronounced in the early part of the period and converged toward reported values by 2015.

Asset Adjustments: Reported current assets increased steadily from 8,650 million USD in 2011 to 11,796 million USD in 2015. Adjusted current assets followed a similar trajectory but remained lower than reported values until 2015, at which point the reported and adjusted figures converged. Total assets showed a significant spike in 2013 and 2014, reaching a peak of 25,917 million USD before declining to 20,975 million USD in 2015. The adjustment for deferred taxes consistently reduced the total asset base, with the largest variance occurring in 2011 and 2012.
Liability Adjustments: Reported total liabilities peaked in 2014 at 17,761 million USD before decreasing sharply to 12,110 million USD in 2015. Adjusted total liabilities were consistently lower than reported figures throughout the period, indicating that the removal of deferred tax liabilities reduced the overall debt profile. Similar to the asset trend, current liabilities showed a narrowing gap between reported and adjusted values over time, reaching full convergence by December 31, 2015.
Equity and Net Income Impact: Adjusted total shareholders' equity remained consistently lower than reported equity from 2011 to 2015, suggesting that the removal of deferred tax items reduced the book value of equity. While reported equity grew from 6,585 million USD to 8,846 million USD, the adjusted equity reached a peak of 8,193 million USD in 2013 before stabilizing at 8,687 million USD in 2015. Net income exhibited significant volatility, with a sharp decline in 2015 to 968 million USD. The adjusted net income was generally higher than reported income in the early years but became lower than reported income by 2015, reflecting changes in the tax adjustment impact on annual profitability.

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Baxter International Inc., Financial Ratios: Reported vs. Adjusted

Baxter International Inc., adjusted financial ratios

	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Current Ratio
Reported current ratio	2.05	1.71	1.69	1.95	1.78
Adjusted current ratio	2.05	1.63	1.87	2.30	2.03
Net Profit Margin
Reported net profit margin	9.71%	14.98%	13.19%	16.39%	16.01%
Adjusted net profit margin	9.18%	14.51%	11.72%	16.27%	17.25%
Total Asset Turnover
Reported total asset turnover	0.48	0.64	0.59	0.70	0.73
Adjusted total asset turnover	0.48	0.66	0.62	0.75	0.79
Financial Leverage
Reported financial leverage	2.37	3.19	3.06	2.94	2.90
Adjusted financial leverage	2.37	3.32	3.00	2.95	2.93
Return on Equity (ROE)
Reported ROE	10.94%	30.75%	23.77%	33.53%	33.77%
Adjusted ROE	10.53%	31.97%	21.82%	36.00%	39.79%
Return on Assets (ROA)
Reported ROA	4.62%	9.63%	7.78%	11.41%	11.66%
Adjusted ROA	4.44%	9.62%	7.27%	12.22%	13.57%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

The removal of deferred taxes reveals distinct variances between reported and adjusted financial ratios from 2011 to 2015, indicating that deferred tax obligations significantly influenced the perceived liquidity, efficiency, and profitability of the entity during the early part of the period.

Liquidity and Current Ratio: Between 2011 and 2013, the adjusted current ratio was consistently higher than the reported ratio, peaking in 2012 at 2.30 compared to the reported 1.95. This suggests that deferred tax liabilities were inflating current obligations. However, this gap narrowed in 2014 and disappeared entirely by 2015, where both reported and adjusted ratios converged at 2.05, indicating a neutralization of the deferred tax impact on short-term liquidity.
Profitability and Return Metrics: Net profit margins exhibited a general downward trend, falling from approximately 16% in 2011 to under 10% by 2015. While the adjusted margin was higher than the reported margin in 2011, it became lower than the reported figure from 2013 through 2015. A similar pattern is observed in Return on Equity (ROE) and Return on Assets (ROA). In 2011, the adjusted ROE was significantly higher at 39.79% compared to the reported 33.77%, but by 2015, the adjusted ROE (10.53%) fell slightly below the reported ROE (10.94%). ROA followed a similar trajectory, decreasing from a peak adjusted value of 13.57% in 2011 to 4.44% in 2015.
Asset Utilization and Efficiency: Total asset turnover showed a steady decline over the five-year period, dropping from 0.73 to 0.48. The adjusted total asset turnover remained marginally higher than the reported ratio from 2011 to 2014, suggesting that the removal of deferred tax assets or liabilities slightly reduced the asset base, thereby improving the efficiency ratio. By 2015, the reported and adjusted ratios reached parity at 0.48.
Financial Leverage and Solvency: Financial leverage remained relatively stable between 2011 and 2014, fluctuating between 2.90 and 3.32. There was a notable decrease in leverage in 2015, with both reported and adjusted ratios dropping to 2.37. The variance between reported and adjusted leverage was minimal throughout the period, indicating that deferred taxes had a less pronounced impact on the overall capital structure than on liquidity or return metrics.

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	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Current assets	11,796)	10,351)	10,004)	9,260)	8,650)
Current liabilities	5,750)	6,042)	5,906)	4,759)	4,857)
Liquidity Ratio
Current ratio¹	2.05	1.71	1.69	1.95	1.78
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted current assets	11,796)	9,850)	9,611)	8,916)	8,355)
Adjusted current liabilities	5,750)	6,033)	5,146)	3,881)	4,119)
Liquidity Ratio
Adjusted current ratio²	2.05	1.63	1.87	2.30	2.03

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 11,796 ÷ 5,750 = 2.05

² Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= 11,796 ÷ 5,750 = 2.05

The liquidity position between 2011 and 2015 is characterized by a consistent increase in current assets alongside fluctuating current liabilities. Reported current assets grew steadily from 8,650 million USD in 2011 to 11,796 million USD by 2015, indicating a persistent expansion of short-term resources.

Current Asset Trends: Both reported and adjusted current assets exhibited a positive growth trajectory over the five-year period. While adjusted current assets were consistently lower than reported assets from 2011 through 2014, the two metrics converged completely in 2015 at 11,796 million USD.
Current Liability Dynamics: Reported current liabilities demonstrated volatility, decreasing slightly in 2012 before rising to a peak of 6,042 million USD in 2014 and receding to 5,750 million USD in 2015. Adjusted current liabilities were significantly lower than reported liabilities in the early part of the period, particularly in 2011 and 2012, but converged with reported figures by 2015.
Reported Current Ratio Performance: The reported current ratio remained relatively stable, fluctuating between a low of 1.69 in 2013 and a high of 2.05 in 2015. This suggests a consistent ability to cover short-term obligations with current assets, with a notable improvement in the final year of the analysis.
Adjusted Current Ratio Trends: The adjusted current ratio showed greater variance than the reported ratio. It peaked at 2.30 in 2012, reflecting a stronger liquidity position after adjustments, but subsequently declined to a period low of 1.63 in 2014. By 2015, the adjusted current ratio recovered to 2.05, aligning exactly with the reported ratio. This convergence suggests that the specific items requiring adjustment in previous years had a diminishing impact on the liquidity profile by the end of the observed period.

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	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Baxter	968)	2,497)	2,012)	2,326)	2,224)
Net sales	9,968)	16,671)	15,259)	14,190)	13,893)
Profitability Ratio
Net profit margin¹	9.71%	14.98%	13.19%	16.39%	16.01%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Baxter	915)	2,419)	1,788)	2,309)	2,396)
Net sales	9,968)	16,671)	15,259)	14,190)	13,893)
Profitability Ratio
Adjusted net profit margin²	9.18%	14.51%	11.72%	16.27%	17.25%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ Net profit margin = 100 × Net income attributable to Baxter ÷ Net sales
= 100 × 968 ÷ 9,968 = 9.71%

² Adjusted net profit margin = 100 × Adjusted net income attributable to Baxter ÷ Net sales
= 100 × 915 ÷ 9,968 = 9.18%

An analysis of the financial results from 2011 to 2015 reveals a period of volatility in profitability, culminating in a significant decline in both net income and profit margins by the end of the period. While the company maintained relatively stable net income levels between 2011 and 2014, the 2015 fiscal year experienced a sharp contraction, with reported net income falling to 968 million US dollars, a reduction of approximately 61% from the previous year's peak.

Adjusted Net Profit Margin Trends: The adjusted net profit margin exhibited a general downward trajectory over the five-year span. Starting at a period high of 17.25% in 2011, the margin declined to 16.27% in 2012 and reached a mid-period low of 11.72% in 2013. Although a partial recovery occurred in 2014, reaching 14.51%, the margin dropped precipitously to 9.18% by December 31, 2015, representing the lowest efficiency level in the analyzed timeframe.
Comparison of Reported versus Adjusted Net Income: A divergence between reported and adjusted figures is evident, indicating the impact of non-recurring items or specific accounting adjustments. In 2011, adjusted net income exceeded reported net income, suggesting that one-time charges negatively impacted the reported result. Conversely, from 2012 through 2015, reported net income consistently remained higher than adjusted net income, indicating that adjustments removed gains or positive non-operating items from the core performance calculation.
Profitability Correlation: The reported net profit margin mirrored the movements of the adjusted net profit margin, though it generally remained higher from 2012 onward. The correlation between the two metrics confirms that the decline in profitability was systemic rather than a result of isolated accounting adjustments. The contraction in 2015 is particularly notable, as the reported margin fell below 10% for the first time in the provided period, dropping to 9.71%.

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	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net sales	9,968)	16,671)	15,259)	14,190)	13,893)
Total assets	20,975)	25,917)	25,869)	20,390)	19,073)
Activity Ratio
Total asset turnover¹	0.48	0.64	0.59	0.70	0.73
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Net sales	9,968)	16,671)	15,259)	14,190)	13,893)
Adjusted total assets	20,621)	25,143)	24,600)	18,890)	17,655)
Activity Ratio
Adjusted total asset turnover²	0.48	0.66	0.62	0.75	0.79

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ Total asset turnover = Net sales ÷ Total assets
= 9,968 ÷ 20,975 = 0.48

² Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 9,968 ÷ 20,621 = 0.48

A general decline in asset utilization efficiency is observed between 2011 and 2015. While the asset base expanded significantly through 2014 before contracting in 2015, the ability to generate revenue relative to those assets trended downward, reaching a five-year low in the final period.

Asset Base Volatility: Reported total assets increased from US$ 19,073 million in 2011 to a peak of US$ 25,917 million in 2014. This expansion was mirrored in the adjusted total assets, which rose from US$ 17,655 million to US$ 25,143 million over the same period. By December 31, 2015, a significant contraction occurred, with reported total assets falling to US$ 20,975 million.
Adjusted Total Asset Turnover Trends: The adjusted total asset turnover ratio exhibited a downward trajectory, starting at 0.79 in 2011 and declining to 0.62 by 2013. Although a slight recovery to 0.66 was recorded in 2014, the ratio dropped sharply to 0.48 in 2015, indicating a marked reduction in the efficiency of asset employment.
Comparative Analysis of Reported and Adjusted Ratios: Between 2011 and 2014, the adjusted total asset turnover was consistently higher than the reported turnover ratio. This suggests that the removal of certain asset components for the adjusted calculation resulted in a more favorable efficiency profile. However, by 2015, the reported and adjusted turnover ratios converged at 0.48, eliminating the variance previously observed between the two metrics.

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	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Total assets	20,975)	25,917)	25,869)	20,390)	19,073)
Total Baxter shareholders’ equity	8,846)	8,120)	8,463)	6,938)	6,585)
Solvency Ratio
Financial leverage¹	2.37	3.19	3.06	2.94	2.90
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets	20,621)	25,143)	24,600)	18,890)	17,655)
Adjusted total Baxter shareholders’ equity	8,687)	7,567)	8,193)	6,414)	6,021)
Solvency Ratio
Adjusted financial leverage²	2.37	3.32	3.00	2.95	2.93

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ Financial leverage = Total assets ÷ Total Baxter shareholders’ equity
= 20,975 ÷ 8,846 = 2.37

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Baxter shareholders’ equity
= 20,621 ÷ 8,687 = 2.37

An analysis of the financial position from 2011 to 2015 reveals a period of asset expansion followed by a significant contraction, alongside a general strengthening of the shareholders' equity base. The relationship between total assets and equity indicates a fluctuating reliance on financial leverage that peaked in 2014 before a sharp decline in 2015.

Adjusted Asset Trends: Adjusted total assets exhibited consistent growth between 2011 and 2014, rising from 17,655 million US dollars to a peak of 25,143 million US dollars. The most substantial increase occurred between 2012 and 2013, where assets grew by approximately 30%. However, this trend reversed in 2015, with adjusted total assets decreasing to 20,621 million US dollars.
Adjusted Shareholders' Equity Evolution: Adjusted total shareholders' equity demonstrated a general upward trajectory over the analyzed period. Starting at 6,021 million US dollars in 2011, equity increased to 8,193 million US dollars by 2013. Despite a temporary decline to 7,567 million US dollars in 2014, equity reached its highest point in 2015 at 8,687 million US dollars, indicating an overall improvement in the company's capital position.
Adjusted Financial Leverage Analysis: The adjusted financial leverage ratio showed a steady increase from 2.93 in 2011 to a peak of 3.32 in 2014. This suggests a progressive increase in the proportion of assets funded by debt relative to equity during this interval. A significant shift occurred in 2015, where the ratio dropped sharply to 2.37, the lowest level in the five-year period. This reduction in leverage coincides with the decrease in total assets and the simultaneous increase in shareholders' equity.
Comparison of Reported and Adjusted Metrics: A divergence between reported and adjusted financial leverage is most evident in 2014, where the adjusted ratio was 0.13 points higher than the reported ratio. By 2015, however, the reported and adjusted leverage ratios converged exactly at 2.37, indicating that the adjustments made to assets and equity had a neutralizing effect on the leverage calculation by the end of the period.

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	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Baxter	968)	2,497)	2,012)	2,326)	2,224)
Total Baxter shareholders’ equity	8,846)	8,120)	8,463)	6,938)	6,585)
Profitability Ratio
ROE¹	10.94%	30.75%	23.77%	33.53%	33.77%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Baxter	915)	2,419)	1,788)	2,309)	2,396)
Adjusted total Baxter shareholders’ equity	8,687)	7,567)	8,193)	6,414)	6,021)
Profitability Ratio
Adjusted ROE²	10.53%	31.97%	21.82%	36.00%	39.79%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ ROE = 100 × Net income attributable to Baxter ÷ Total Baxter shareholders’ equity
= 100 × 968 ÷ 8,846 = 10.94%

² Adjusted ROE = 100 × Adjusted net income attributable to Baxter ÷ Adjusted total Baxter shareholders’ equity
= 100 × 915 ÷ 8,687 = 10.53%

The financial performance between 2011 and 2015 is characterized by fluctuating net income levels and a generally increasing trend in shareholders' equity, culminating in a significant contraction of return on equity in the final year of the period.

Net Income Trends: Reported net income remained relatively stable from 2011 to 2014, peaking at 2,497 million USD in 2014 before experiencing a sharp decline to 968 million USD in 2015. Adjusted net income followed a similar trajectory, although it remained lower than reported figures in 2013 and 2015, indicating the impact of non-recurring items or adjustments on the bottom line.
Shareholders' Equity Growth: Both reported and adjusted shareholders' equity demonstrated a general upward trajectory over the five-year period. Reported equity increased from 6,585 million USD in 2011 to 8,846 million USD in 2015. Adjusted equity followed a nearly identical pattern, rising from 6,021 million USD in 2011 to 8,687 million USD in 2015, despite a moderate decrease observed in 2014.
Return on Equity (ROE) Analysis: ROE exhibited significant volatility and a overall downward trend. Reported ROE declined from 33.77% in 2011 to 10.94% in 2015. Adjusted ROE started at a higher baseline of 39.79% in 2011, fell to 21.82% in 2013, recovered to 31.97% in 2014, and ultimately dropped to 10.53% in 2015. A notable observation is the narrowing gap between adjusted and reported ROE; while adjusted ROE was considerably higher than reported ROE between 2011 and 2014, the two metrics converged almost entirely by the end of 2015.

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	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Baxter	968)	2,497)	2,012)	2,326)	2,224)
Total assets	20,975)	25,917)	25,869)	20,390)	19,073)
Profitability Ratio
ROA¹	4.62%	9.63%	7.78%	11.41%	11.66%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Baxter	915)	2,419)	1,788)	2,309)	2,396)
Adjusted total assets	20,621)	25,143)	24,600)	18,890)	17,655)
Profitability Ratio
Adjusted ROA²	4.44%	9.62%	7.27%	12.22%	13.57%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ ROA = 100 × Net income attributable to Baxter ÷ Total assets
= 100 × 968 ÷ 20,975 = 4.62%

² Adjusted ROA = 100 × Adjusted net income attributable to Baxter ÷ Adjusted total assets
= 100 × 915 ÷ 20,621 = 4.44%

The financial performance between 2011 and 2015 is characterized by significant volatility in net income and fluctuations in the asset base, leading to an overall decline in asset utilization efficiency. While the company experienced a period of asset expansion and relatively stable earnings in the early part of the period, a substantial contraction in profitability occurred by 2015.

Net Income Trends: Both reported and adjusted net income exhibited instability over the five-year period. Reported net income peaked in 2014 at 2,497 million US dollars before experiencing a sharp decline to 968 million US dollars in 2015. Adjusted net income followed a similar trajectory, falling from a 2014 high of 2,419 million US dollars to 915 million US dollars in 2015, representing a significant reduction in earnings capacity.
Asset Base Dynamics: Total assets showed a marked increase between 2011 and 2014, with reported assets rising from 19,073 million US dollars to a peak of 25,917 million US dollars. This expansion was mirrored in the adjusted asset figures. However, this trend reversed in 2015, as reported total assets decreased to 20,975 million US dollars, suggesting a contraction or divestment of assets.
Return on Assets (ROA) Analysis: The Adjusted ROA demonstrated a general downward trend, starting at 13.57% in 2011 and ending at 4.44% in 2015. A notable dip occurred in 2013, where the Adjusted ROA fell to 7.27%, coinciding with a significant increase in the asset base that outpaced income growth. Although there was a partial recovery to 9.62% in 2014, the collapse in net income in 2015 drove the ratio to its lowest point in the observed period.
Comparison of Reported vs. Adjusted Metrics: In the initial years of the analysis, adjusted ROA was consistently higher than reported ROA, indicating that non-recurring or adjusting items were negatively impacting reported performance. By 2014 and 2015, the variance between reported and adjusted ROA narrowed significantly, with both metrics converging at 9.63% and 9.62% in 2014, and 4.62% and 4.44% in 2015, respectively.

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