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Analysis of Income Taxes

Difficulty: Advanced


Income Tax Expense (Benefit)

Chevron Corp., income tax expense (benefit), continuing operations

USD $ in millions

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12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
U.S. federal (382) (623) (817) 748  15 
State and local (97) (15) (187) 336  120 
International 3,634  2,744  2,997  9,235  12,296 
Current 3,155  2,106  1,993  10,319  12,431 
U.S. federal (2,561) (1,558) (580) 1,330  1,128 
State and local 66  (121) (109) 36  74 
International (708) (2,156) (1,172) 207  675 
Deferred (3,203) (3,835) (1,861) 1,573  1,877 
Income tax expense (benefit) (48) (1,729) 132  11,892  14,308 

Source: Based on data from Chevron Corp. 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. Chevron Corp.'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. Chevron Corp.'s deferred declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Income tax expense (benefit) 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. Chevron Corp.'s income tax expense (benefit) declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level.

Effective Income Tax Rate (EITR)

Chevron Corp., effective income tax rate (EITR) reconciliation

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
U.S. statutory federal income tax rate 35.00% 35.00% 35.00% 35.00% 35.00%
Effective income tax rate -0.50% 80.00% 2.70% 38.10% 39.90%

Source: Based on data from Chevron Corp. Annual Reports

Item Description The company
Effective income 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. Chevron Corp.'s effective income tax rate increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

Components of Deferred Tax Assets and Liabilities

Chevron Corp., components of deferred tax assets and liabilities

USD $ in millions

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Foreign tax credits 11,872  10,976  10,534  11,867  11,572 
Asset retirement obligations/environmental reserves 5,511  6,251  6,880  6,686  6,279 
Employee benefits 3,129  4,392  4,801  4,831  3,825 
Deferred credits 1,769  1,950  1,810  1,828  2,768 
Tax loss carryforwards 5,463  6,030  2,748  1,747  1,016 
Other accrued liabilities 842  510  525  498  533 
Inventory 336  374  120  153  358 
Miscellaneous 2,415  3,121  2,525  2,128  1,439 
Deferred tax assets, gross 31,337  33,604  29,943  29,738  27,790 
Deferred tax assets valuation allowance (16,574) (16,069) (15,412) (16,292) (17,171)
Deferred tax assets, net 14,763  17,535  14,531  13,446  10,619 
Properties, plant and equipment (19,869) (25,180) (27,044) (28,452) (25,936)
Investments and other (4,796) (5,222) (3,743) (3,059) (2,272)
Deferred tax liabilities (24,665) (30,402) (30,787) (31,511) (28,208)
Deferred taxes, net (9,902) (12,867) (16,256) (18,065) (17,589)

Source: Based on data from Chevron Corp. Annual Reports

Item Description The company
Deferred tax assets, gross 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. Chevron Corp.'s deferred tax assets, gross increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.
Deferred tax assets, net 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. Chevron Corp.'s deferred tax assets, net increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.
Deferred taxes, net 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. Chevron Corp.'s deferred taxes, net increased from 2015 to 2016 and from 2016 to 2017.

Deferred Tax Assets and Liabilities, Classification

Chevron Corp., deferred tax assets and liabilities, classification

USD $ in millions

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Current deferred tax assets (included in Prepaid expenses and other current assets) 917  1,071  1,341 
Noncurrent deferred tax assets (included in Deferred charges and other assets) 4,750  4,649  4,512  3,597  2,954 
Current deferred tax liabilities (included in Federal and other taxes on income) 996  813  583 
Noncurrent deferred income taxes 14,652  17,516  20,689  21,920  21,301 

Source: Based on data from Chevron Corp. Annual Reports

Item Description The company
Current deferred tax assets (included in Prepaid expenses and other current assets) The current portion of 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; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset.
Noncurrent deferred tax assets (included in Deferred charges and other assets) The noncurrent portion as of the balance sheet date of the aggregate carrying amount 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; after the valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. Chevron Corp.'s noncurrent deferred tax assets (included in Deferred charges and other assets) increased from 2015 to 2016 and from 2016 to 2017.
Current deferred tax liabilities (included in Federal and other taxes on income) Represents the current portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A current taxable temporary difference is a difference between the tax basis and the carrying amount of a current asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.
Noncurrent deferred income taxes Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. Chevron Corp.'s noncurrent deferred income taxes declined from 2015 to 2016 and from 2016 to 2017.

Analyst Adjustments: Removal of Deferred Taxes

Chevron Corp., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Current Assets
Current assets (as reported) 28,560  29,619  35,347  42,232  50,250 
Less: Current deferred tax assets, net 917  1,071  1,341 
Current assets (adjusted) 28,560  29,619  34,430  41,161  48,909 
Adjustment to Total Assets
Total assets (as reported) 253,806  260,078  266,103  266,026  253,753 
Less: Current deferred tax assets, net 917  1,071  1,341 
Less: Noncurrent deferred tax assets, net 4,750  4,649  4,512  3,597  2,954 
Total assets (adjusted) 249,056  255,429  260,674  261,358  249,458 
Adjustment to Current Liabilities
Current liabilities (as reported) 27,737  31,785  26,464  31,926  33,018 
Less: Current deferred tax liabilities, net 996  813  583 
Current liabilities (adjusted) 27,737  31,785  25,468  31,113  32,435 
Adjustment to Total Liabilities
Total liabilities (as reported) 104,487  113,356  112,217  109,835  103,326 
Less: Current deferred tax liabilities, net 996  813  583 
Less: Noncurrent deferred tax liabilities, net 14,652  17,516  20,689  21,920  21,301 
Total liabilities (adjusted) 89,835  95,840  90,532  87,102  81,442 
Adjustment to Total Chevron Corporation Stockholders' Equity
Total Chevron Corporation stockholders' equity (as reported) 148,124  145,556  152,716  155,028  149,113 
Less: Net deferred tax assets (liabilities) (9,902) (12,867) (16,256) (18,065) (17,589)
Total Chevron Corporation stockholders' equity (adjusted) 158,026  158,423  168,972  173,093  166,702 
Adjustment to Net Income (loss) Attributable To Chevron Corporation
Net income (loss) attributable to Chevron Corporation (as reported) 9,195  (497) 4,587  19,241  21,423 
Add: Deferred income tax expense (benefit) (3,203) (3,835) (1,861) 1,573  1,877 
Net income (loss) attributable to Chevron Corporation (adjusted) 5,992  (4,332) 2,726  20,814  23,300 

Adjusted Ratios: Removal of Deferred Taxes (Summary)

Chevron Corp., adjusted ratios

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Current Ratio
Reported current ratio 1.03 0.93 1.34 1.32 1.52
Adjusted current ratio 1.03 0.93 1.35 1.32 1.51
Net Profit Margin
Reported net profit margin 6.83% -0.45% 3.53% 9.60% 9.73%
Adjusted net profit margin 4.45% -3.93% 2.10% 10.38% 10.58%
Total Asset Turnover
Reported total asset turnover 0.53 0.42 0.49 0.75 0.87
Adjusted total asset turnover 0.54 0.43 0.50 0.77 0.88
Financial Leverage
Reported financial leverage 1.71 1.79 1.74 1.72 1.70
Adjusted financial leverage 1.58 1.61 1.54 1.51 1.50
Return on Equity (ROE)
Reported ROE 6.21% -0.34% 3.00% 12.41% 14.37%
Adjusted ROE 3.79% -2.73% 1.61% 12.02% 13.98%
Return on Assets (ROA)
Reported ROA 3.62% -0.19% 1.72% 7.23% 8.44%
Adjusted ROA 2.41% -1.70% 1.05% 7.96% 9.34%
Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Chevron Corp.'s adjusted current ratio deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Chevron Corp.'s adjusted net profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Chevron Corp.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
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.
Chevron Corp.'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. Chevron Corp.'s adjusted ROE deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Chevron Corp.'s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Current assets (USD $ in millions) 28,560  29,619  35,347  42,232  50,250 
Current liabilities (USD $ in millions) 27,737  31,785  26,464  31,926  33,018 
Current ratio1 1.03 0.93 1.34 1.32 1.52
Adjusted for Deferred Taxes
Adjusted current assets (USD $ in millions) 28,560  29,619  34,430  41,161  48,909 
Adjusted current liabilities (USD $ in millions) 27,737  31,785  25,468  31,113  32,435 
Adjusted current ratio2 1.03 0.93 1.35 1.32 1.51

2017 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= 28,560 ÷ 27,737 = 1.03

2 Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= 28,560 ÷ 27,737 = 1.03

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Chevron Corp.'s adjusted current ratio deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

Adjusted Net Profit Margin

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Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) attributable to Chevron Corporation (USD $ in millions) 9,195  (497) 4,587  19,241  21,423 
Sales and other operating revenues (USD $ in millions) 134,674  110,215  129,925  200,494  220,156 
Net profit margin1 6.83% -0.45% 3.53% 9.60% 9.73%
Adjusted for Deferred Taxes
Adjusted net income (loss) attributable to Chevron Corporation (USD $ in millions) 5,992  (4,332) 2,726  20,814  23,300 
Adjusted net profit margin2 4.45% -3.93% 2.10% 10.38% 10.58%

2017 Calculations

1 Net profit margin = 100 × Net income (loss) attributable to Chevron Corporation ÷ Sales and other operating revenues
= 100 × 9,195 ÷ 134,674 = 6.83%

2 Adjusted net profit margin = 100 × Adjusted net income (loss) attributable to Chevron Corporation ÷ Sales and other operating revenues
= 100 × 5,992 ÷ 134,674 = 4.45%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Chevron Corp.'s adjusted net profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Sales and other operating revenues (USD $ in millions) 134,674  110,215  129,925  200,494  220,156 
Total assets (USD $ in millions) 253,806  260,078  266,103  266,026  253,753 
Total asset turnover1 0.53 0.42 0.49 0.75 0.87
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions) 249,056  255,429  260,674  261,358  249,458 
Adjusted total asset turnover2 0.54 0.43 0.50 0.77 0.88

2017 Calculations

1 Total asset turnover = Sales and other operating revenues ÷ Total assets
= 134,674 ÷ 253,806 = 0.53

2 Adjusted total asset turnover = Sales and other operating revenues ÷ Adjusted total assets
= 134,674 ÷ 249,056 = 0.54

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Chevron Corp.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Total assets (USD $ in millions) 253,806  260,078  266,103  266,026  253,753 
Total Chevron Corporation stockholders' equity (USD $ in millions) 148,124  145,556  152,716  155,028  149,113 
Financial leverage1 1.71 1.79 1.74 1.72 1.70
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions) 249,056  255,429  260,674  261,358  249,458 
Adjusted total Chevron Corporation stockholders' equity (USD $ in millions) 158,026  158,423  168,972  173,093  166,702 
Adjusted financial leverage2 1.58 1.61 1.54 1.51 1.50

2017 Calculations

1 Financial leverage = Total assets ÷ Total Chevron Corporation stockholders' equity
= 253,806 ÷ 148,124 = 1.71

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Chevron Corporation stockholders' equity
= 249,056 ÷ 158,026 = 1.58

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.
Chevron Corp.'s adjusted financial leverage increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) attributable to Chevron Corporation (USD $ in millions) 9,195  (497) 4,587  19,241  21,423 
Total Chevron Corporation stockholders' equity (USD $ in millions) 148,124  145,556  152,716  155,028  149,113 
ROE1 6.21% -0.34% 3.00% 12.41% 14.37%
Adjusted for Deferred Taxes
Adjusted net income (loss) attributable to Chevron Corporation (USD $ in millions) 5,992  (4,332) 2,726  20,814  23,300 
Adjusted total Chevron Corporation stockholders' equity (USD $ in millions) 158,026  158,423  168,972  173,093  166,702 
Adjusted ROE2 3.79% -2.73% 1.61% 12.02% 13.98%

2017 Calculations

1 ROE = 100 × Net income (loss) attributable to Chevron Corporation ÷ Total Chevron Corporation stockholders' equity
= 100 × 9,195 ÷ 148,124 = 6.21%

2 Adjusted ROE = 100 × Adjusted net income (loss) attributable to Chevron Corporation ÷ Adjusted total Chevron Corporation stockholders' equity
= 100 × 5,992 ÷ 158,026 = 3.79%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. Chevron Corp.'s adjusted ROE deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) attributable to Chevron Corporation (USD $ in millions) 9,195  (497) 4,587  19,241  21,423 
Total assets (USD $ in millions) 253,806  260,078  266,103  266,026  253,753 
ROA1 3.62% -0.19% 1.72% 7.23% 8.44%
Adjusted for Deferred Taxes
Adjusted net income (loss) attributable to Chevron Corporation (USD $ in millions) 5,992  (4,332) 2,726  20,814  23,300 
Adjusted total assets (USD $ in millions) 249,056  255,429  260,674  261,358  249,458 
Adjusted ROA2 2.41% -1.70% 1.05% 7.96% 9.34%

2017 Calculations

1 ROA = 100 × Net income (loss) attributable to Chevron Corporation ÷ Total assets
= 100 × 9,195 ÷ 253,806 = 3.62%

2 Adjusted ROA = 100 × Adjusted net income (loss) attributable to Chevron Corporation ÷ Adjusted total assets
= 100 × 5,992 ÷ 249,056 = 2.41%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Chevron Corp.'s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.