.Analysis of Income Taxes
Difficulty: Advanced
Income Tax Accounting Policy
Income tax expense includes U.S., state, local and international income taxes, plus a provision for U.S. taxes on undistributed earnings of foreign subsidiaries and other prescribed foreign entities not deemed to be indefinitely reinvested. Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial reporting basis and the tax basis of existing assets and liabilities. The tax rate used to determine the deferred tax assets and liabilities is the enacted tax rate for the year and manner in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. Coca-Cola records taxes that are collected from customers and remitted to governmental authorities on a net basis in the consolidated statements of income.
Coca-Cola is involved in various tax matters, with respect to some of which the outcome is uncertain. Coca-Cola establishes reserves to remove some or all of the tax benefit of any of the tax positions at the time Coca-Cola determines that it becomes uncertain based upon one of the following conditions: (1) the tax position is not "more likely than not" to be sustained, (2) the tax position is "more likely than not" to be sustained, but for a lesser amount, or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) Coca-Cola presumes the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without consideration of the possibility of offset or aggregation with other tax positions taken. A number of years may elapse before a particular uncertain tax position is audited and finally resolved or when a tax assessment is raised. The number of years subject to tax assessments varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a failure to meet the "more likely than not" recognition threshold would be recognized in income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions: (1) the tax position is "more likely than not" to be sustained, (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation, or (3) the statute of limitations for the tax position has expired.
Source: Coca-Cola Co., Annual Report
Income Tax Expense (Benefit)
Coca-Cola Co., 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 | |
|---|---|---|---|---|---|---|
| | United States | |||||
| | State and local | |||||
| | International | |||||
| | Current | |||||
| | United States | |||||
| | State and local | |||||
| | International | |||||
| | Deferred | |||||
| | Income taxes from continuing operations |
Source: Based on data from Coca-Cola Co. 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. | Coca-Cola Co.'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. | Coca-Cola Co.'s deferred declined from 2015 to 2016 and from 2016 to 2017. |
| Income taxes 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. | Coca-Cola Co.'s income taxes from continuing operations declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Effective Income Tax Rate (EITR)
Coca-Cola Co., effective income tax rate (EITR) reconciliation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Statutory U.S. federal tax rate | % | % | % | % | % |
| | State and local income taxes, net of federal benefit | % | % | % | % | % |
| | Earnings in jurisdictions taxed at rates different from the statutory U.S. federal rate | % | % | % | % | % |
| | Equity income or loss | % | % | % | % | % |
| | Tax Reform Act | % | % | % | % | % |
| | Other, net | % | % | % | % | % |
| | Effective tax rate | % | % | % | % | % |
Source: Based on data from Coca-Cola Co. Annual Reports
| Item | Description | The company |
|---|---|---|
| Effective tax rate | A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. | Coca-Cola Co.'s effective tax rate declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Components of Deferred Tax Assets and Liabilities
Coca-Cola Co., 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 | ||
|---|---|---|---|---|---|---|
| | Property, plant and equipment | |||||
| | Trademarks and other intangible assets | |||||
| | Equity method investments, including foreign currency translation adjustment | |||||
| | Derivative financial instruments | |||||
| | Other liabilities | |||||
| | Benefit plans | |||||
| | Net operating/capital loss carryforwards | |||||
| | Other | |||||
| | Gross deferred tax assets | |||||
| | Valuation allowances | |||||
| | Deferred tax assets | |||||
| | Property, plant and equipment | |||||
| | Trademarks and other intangible assets | |||||
| | Equity method investments, including foreign currency translation adjustment | |||||
| | Derivative financial instruments | |||||
| | Other liabilities | |||||
| | Benefit plans | |||||
| | Other | |||||
| | Deferred tax liabilities | |||||
| | Net deferred tax assets (liabilities) |
Source: Based on data from Coca-Cola Co. Annual Reports
| Item | Description | The company |
|---|---|---|
| Gross deferred tax assets | The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. | Coca-Cola Co.'s gross deferred tax assets increased from 2015 to 2016 but then declined significantly 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. | Coca-Cola Co.'s deferred tax assets increased from 2015 to 2016 but then declined significantly 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. | Coca-Cola Co.'s net deferred tax assets (liabilities) increased from 2015 to 2016 and from 2016 to 2017. |
Deferred Tax Assets and Liabilities, Classification
Coca-Cola Co., deferred tax assets and liabilities, classification
USD $ in millions
| 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 assets) | |||||
| | Noncurrent deferred tax assets (included in Other assets) | |||||
| | Current deferred tax liabilities (included in Accounts payable and accrued expenses) | |||||
| | Noncurrent deferred tax liabilities |
Source: Based on data from Coca-Cola Co. Annual Reports
| Item | Description | The company |
|---|---|---|
| Current deferred tax assets (included in Prepaid expenses and other 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. | Coca-Cola Co.'s current deferred tax assets (included in Prepaid expenses and other assets) declined from 2015 to 2016 and from 2016 to 2017. |
| Noncurrent deferred tax assets (included in 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. | Coca-Cola Co.'s noncurrent deferred tax assets (included in Other assets) declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
| Current deferred tax liabilities (included in Accounts payable and accrued expenses) | 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. | Coca-Cola Co.'s current deferred tax liabilities (included in Accounts payable and accrued expenses) declined from 2015 to 2016 and from 2016 to 2017. |
| Noncurrent deferred tax liabilities | 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. | Coca-Cola Co.'s noncurrent deferred tax liabilities declined from 2015 to 2016 and from 2016 to 2017. |
Analyst Adjustments: Removal of Deferred Taxes
Coca-Cola Co., 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 | |||||
| | Less: Noncurrent deferred tax assets, net | |||||
| | Total assets (adjusted) | |||||
| Adjustment to Current Liabilities | ||||||
| | Current liabilities (as reported) | |||||
| | Less: Current deferred tax liabilities, net | |||||
| | Current liabilities (adjusted) | |||||
| Adjustment to Total Liabilities | ||||||
| | Total liabilities (as reported) | |||||
| | Less: Current deferred tax liabilities, net | |||||
| | Less: Noncurrent deferred tax liabilities, net | |||||
| | Total liabilities (adjusted) | |||||
| Adjustment to Equity Attributable To Shareowners Of The Coca-Cola Company | ||||||
| | Equity attributable to shareowners of The Coca-Cola Company (as reported) | |||||
| | Less: Net deferred tax assets (liabilities) | |||||
| | Equity attributable to shareowners of The Coca-Cola Company (adjusted) | |||||
| Adjustment to Net Income Attributable To Shareowners Of The Coca-Cola Company | ||||||
| | Net income attributable to shareowners of The Coca-Cola Company (as reported) | |||||
| | Add: Deferred income tax expense (benefit) | |||||
| | Net income attributable to shareowners of The Coca-Cola Company (adjusted) | |||||
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Coca-Cola Co., 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. | Coca-Cola Co.'s adjusted current ratio improved from 2015 to 2016 and from 2016 to 2017. |
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Coca-Cola Co.'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. | Coca-Cola Co.'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. |
Coca-Cola Co.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Coca-Cola Co.'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. | Coca-Cola Co.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017. |
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 liabilities (USD $ in millions) | |||||
| | Adjusted current ratio2 | |||||
2017 Calculations
1 Current ratio = Current assets ÷ Current liabilities
= ÷ =
2 Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | Coca-Cola Co.'s adjusted current ratio improved from 2015 to 2016 and from 2016 to 2017. |
Adjusted Net Profit Margin
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) | |||||
| | Net operating revenues (USD $ in millions) | |||||
| | Net profit margin1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) | |||||
| | Adjusted net profit margin2 | % | % | % | % | % |
2017 Calculations
1 Net profit margin = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Net operating revenues
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ Net operating revenues
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Coca-Cola Co.'s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Total Asset Turnover
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net operating revenues (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | Total asset turnover1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted total asset turnover2 | |||||
2017 Calculations
1 Total asset turnover = Net operating revenues ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net operating revenues ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Coca-Cola Co.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
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) | |||||
| | Equity attributable to shareowners of The Coca-Cola Company (USD $ in millions) | |||||
| | Financial leverage1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted equity attributable to shareowners of The Coca-Cola Company (USD $ in millions) | |||||
| | Adjusted financial leverage2 | |||||
2017 Calculations
1 Financial leverage = Total assets ÷ Equity attributable to shareowners of The Coca-Cola Company
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted equity attributable to shareowners of The Coca-Cola Company
= ÷ =
| 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. |
Coca-Cola Co.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Equity (ROE)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) | |||||
| | Equity attributable to shareowners of The Coca-Cola Company (USD $ in millions) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) | |||||
| | Adjusted equity attributable to shareowners of The Coca-Cola Company (USD $ in millions) | |||||
| | Adjusted ROE2 | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Equity attributable to shareowners of The Coca-Cola Company
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ Adjusted equity attributable to shareowners of The Coca-Cola Company
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | Coca-Cola Co.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Assets (ROA)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income attributable to shareowners of The Coca-Cola Company (USD $ in millions) | |||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income attributable to shareowners of The Coca-Cola Company ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net income attributable to shareowners of The Coca-Cola Company ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Coca-Cola Co.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017. |
