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Microsoft Excel LibreOffice Calc

CVS Health Corp. (CVS)


Analysis of Income Taxes

Difficulty: Advanced


Income Tax Accounting Policy

CVS Health accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year or years in which the differences are expected to reverse. The effect of a change in the tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date of such change.

The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 22, 2017. Among numerous changes to existing tax laws, the TCJA permanently reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The effects of changes in tax rates on deferred tax balances are required to be taken into consideration in the period in which the changes are enacted, regardless of when they are effective. As a result of the reduction of the corporate income tax rate under the TCJA, CVS Health estimated the revaluation of its net deferred tax liabilities and recorded a provisional noncash income tax benefit of approximately $1.5 billion for year ended December 31, 2017. CVS Health completed its assessment of the TCJA’s final impact in December 2018 and recorded an additional tax benefit of approximately $100 million in the year ended December 31, 2018.

CVS Health recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, CVS Health considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent results of operations. CVS Health establishes a valuation allowance when it does not consider it more likely than not that a deferred tax asset will be recovered.

CVS Health records uncertain tax positions on the basis of a two-step process whereby (1) CVS Health determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, CVS Health recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

Interest and/or penalties related to uncertain tax positions are recognized in the income tax provision.

Source: 10-K (filing date: 2019-02-28).


Income Tax Expense (Benefit)

CVS Health Corp., income tax expense (benefit), continuing operations

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Federal hidden hidden hidden hidden hidden
State hidden hidden hidden hidden hidden
Current hidden hidden hidden hidden hidden
Federal hidden hidden hidden hidden hidden
State hidden hidden hidden hidden hidden
Deferred hidden hidden hidden hidden hidden
Income tax provision for continuing operations hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

Item Description The company
Current Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. CVS Health Corp.’s current declined from 2016 to 2017 and from 2017 to 2018.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. CVS Health Corp.’s deferred declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Income tax provision for continuing operations Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. CVS Health Corp.’s income tax provision for continuing operations declined from 2016 to 2017 but then slightly increased from 2017 to 2018.

Effective Income Tax Rate (EITR)

CVS Health Corp., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Statutory income tax rate hidden hidden hidden hidden hidden
State income taxes, net of federal tax benefit hidden hidden hidden hidden hidden
Health insurer fee hidden hidden hidden hidden hidden
Sale of subsidiary hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Effective income tax rate, before effect of the Tax Cuts and Jobs Act and goodwill impairments hidden hidden hidden hidden hidden
Effect of the Tax Cuts and Jobs Act hidden hidden hidden hidden hidden
Goodwill impairments hidden hidden hidden hidden hidden
Effective income tax rate hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

Item Description The company
Effective income tax rate, before effect of the Tax Cuts and Jobs Act and goodwill impairments Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. CVS Health Corp.’s effective income tax rate, before effect of the Tax Cuts and Jobs Act and goodwill impairments declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Components of Deferred Tax Assets and Liabilities

CVS Health Corp., components of deferred tax assets and liabilities

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Lease and rents hidden hidden hidden hidden hidden
Inventory hidden hidden hidden hidden hidden
Employee benefits hidden hidden hidden hidden hidden
Allowance for doubtful accounts hidden hidden hidden hidden hidden
Retirement benefits hidden hidden hidden hidden hidden
Net operating loss and capital loss carryforwards hidden hidden hidden hidden hidden
Deferred income hidden hidden hidden hidden hidden
Insurance reserves hidden hidden hidden hidden hidden
Investments hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Deferred income tax assets, gross hidden hidden hidden hidden hidden
Valuation allowance hidden hidden hidden hidden hidden
Deferred income tax assets hidden hidden hidden hidden hidden
Inventories hidden hidden hidden hidden hidden
Depreciation and amortization hidden hidden hidden hidden hidden
Deferred income tax liabilities hidden hidden hidden hidden hidden
Net deferred income tax assets (liabilities) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

Item Description The company
Deferred income tax assets, gross Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. CVS Health Corp.’s deferred income tax assets, gross declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Deferred income tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. CVS Health Corp.’s deferred income tax assets declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Net deferred income tax assets (liabilities) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. CVS Health Corp.’s net deferred income tax assets (liabilities) increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Deferred Tax Assets and Liabilities, Classification

CVS Health Corp., deferred tax assets and liabilities, classification

US$ in millions

Microsoft Excel LibreOffice Calc

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

Item Description The company
Deferred income tax assets, noncurrent (included in other assets) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent.
Deferred income tax liabilities, noncurrent Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. CVS Health Corp.’s deferred income tax liabilities, noncurrent declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Analyst Adjustments: Removal of Deferred Taxes

CVS Health Corp., adjustments to financial data

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Current Assets
Current assets (as reported) hidden hidden hidden hidden hidden
Less: Current deferred tax assets, net hidden hidden hidden hidden hidden
Current assets (adjusted) hidden hidden hidden hidden hidden
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden
Less: Current deferred tax assets, net hidden hidden hidden hidden hidden
Less: Noncurrent deferred tax assets, net hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden
Adjustment to Total Liabilities
Total liabilities (as reported) hidden hidden hidden hidden hidden
Less: Noncurrent deferred tax liabilities, net hidden hidden hidden hidden hidden
Total liabilities (adjusted) hidden hidden hidden hidden hidden
Adjustment to Total CVS Health Shareholders’ Equity
Total CVS Health shareholders’ equity (as reported) hidden hidden hidden hidden hidden
Less: Net deferred tax assets (liabilities) hidden hidden hidden hidden hidden
Total CVS Health shareholders’ equity (adjusted) hidden hidden hidden hidden hidden
Adjustment to Net Income (loss) Attributable To CVS Health
Net income (loss) attributable to CVS Health (as reported) hidden hidden hidden hidden hidden
Add: Deferred income tax expense (benefit) hidden hidden hidden hidden hidden
Net income (loss) attributable to CVS Health (adjusted) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).


CVS Health Corp., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Deferred Taxes (Summary)

CVS Health Corp., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Current Ratio
Reported current ratio hidden hidden hidden hidden hidden
Adjusted current ratio hidden hidden hidden hidden hidden
Net Profit Margin
Reported net profit margin hidden hidden hidden hidden hidden
Adjusted net profit margin hidden hidden hidden hidden hidden
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. CVS Health Corp.’s adjusted current ratio deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. CVS Health Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. CVS Health Corp.’s adjusted total asset turnover improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.
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.
CVS Health Corp.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. CVS Health Corp.’s adjusted ROE deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. CVS Health Corp.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018.

CVS Health Corp., Ratios: Reported vs. Adjusted


Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Current assets hidden hidden hidden hidden hidden
Current liabilities hidden hidden hidden hidden hidden
Ratio
Current ratio1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted current assets hidden hidden hidden hidden hidden
Current liabilities hidden hidden hidden hidden hidden
Ratio
Adjusted current ratio2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

2018 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. CVS Health Corp.’s adjusted current ratio deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income (loss) attributable to CVS Health hidden hidden hidden hidden hidden
Revenues from customers hidden hidden hidden hidden hidden
Ratio
Net profit margin1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income (loss) attributable to CVS Health hidden hidden hidden hidden hidden
Revenues from customers hidden hidden hidden hidden hidden
Ratio
Adjusted net profit margin2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

2018 Calculations

1 Net profit margin = 100 × Net income (loss) attributable to CVS Health ÷ Revenues from customers
= 100 × hidden ÷ hidden = hidden

2 Adjusted net profit margin = 100 × Adjusted net income (loss) attributable to CVS Health ÷ Revenues from customers
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. CVS Health Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Revenues from customers hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Revenues from customers hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

2018 Calculations

1 Total asset turnover = Revenues from customers ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Revenues from customers ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. CVS Health Corp.’s adjusted total asset turnover improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Total assets hidden hidden hidden hidden hidden
Total CVS Health shareholders’ equity hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets hidden hidden hidden hidden hidden
Adjusted total CVS Health shareholders’ equity hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

2018 Calculations

1 Financial leverage = Total assets ÷ Total CVS Health shareholders’ equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total CVS Health shareholders’ equity
= hidden ÷ hidden = hidden

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.
CVS Health Corp.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income (loss) attributable to CVS Health hidden hidden hidden hidden hidden
Total CVS Health shareholders’ equity hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income (loss) attributable to CVS Health hidden hidden hidden hidden hidden
Adjusted total CVS Health shareholders’ equity hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

2018 Calculations

1 ROE = 100 × Net income (loss) attributable to CVS Health ÷ Total CVS Health shareholders’ equity
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Adjusted net income (loss) attributable to CVS Health ÷ Adjusted total CVS Health shareholders’ equity
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. CVS Health Corp.’s adjusted ROE deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income (loss) attributable to CVS Health hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income (loss) attributable to CVS Health hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-14), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-09), 10-K (filing date: 2015-02-10).

2018 Calculations

1 ROA = 100 × Net income (loss) attributable to CVS Health ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Adjusted net income (loss) attributable to CVS Health ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. CVS Health Corp.’s adjusted ROA deteriorated from 2016 to 2017 and from 2017 to 2018.