.Analysis of Income Taxes
Difficulty: Advanced
Income Tax Accounting Policy
The provision for income taxes is determined using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based upon the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates that will be in effect at the time such differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Colgate uses a comprehensive model to recognize, measure, present and disclose in its financial statements uncertain tax positions that Colgate has taken or expects to take on an income tax return. Colgate recognizes interest expense and penalties related to unrecognized tax benefits within Provision for income taxes.
Source: Colgate-Palmolive Co., Annual Report
Income Tax Expense (Benefit)
Colgate-Palmolive 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 | |
|---|---|---|---|---|---|---|
| | Current tax provision | |||||
| | Deferred tax provision (benefit) | |||||
| | Provision for income taxes |
Source: Based on data from Colgate-Palmolive Co. Annual Reports
| Item | Description | The company |
|---|---|---|
| Current tax provision | 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. | Colgate-Palmolive Co.'s current tax provision declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
| Deferred tax provision (benefit) | 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. | Colgate-Palmolive Co.'s deferred tax provision (benefit) increased from 2015 to 2016 and from 2016 to 2017. |
| Provision for income taxes | 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. | Colgate-Palmolive Co.'s provision for income taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Effective Income Tax Rate (EITR)
Colgate-Palmolive Co., effective income tax rate (EITR) reconciliation
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Tax at United States statutory rate | % | % | % | % | % |
| | State income taxes, net of federal benefit | % | % | % | % | % |
| | Earnings taxed at other than United States statutory rate | % | % | % | % | % |
| | Charge for U.S. tax reform | % | % | % | % | % |
| | Excess tax benefits from stock-based compensation | % | % | % | % | % |
| | Charge (benefit) for foreign tax matters | % | % | % | % | % |
| | Benefit from Venezuela remeasurement | % | % | % | % | % |
| | Tax charge on incremental repatriation of foreign earnings | % | % | % | % | % |
| | Venezuela deconsolidation | % | % | % | % | % |
| | Other, net | % | % | % | % | % |
| | Effective tax rate | % | % | % | % | % |
Source: Based on data from Colgate-Palmolive 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. | Colgate-Palmolive Co.'s effective tax rate declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
Components of Deferred Tax Assets and Liabilities
Colgate-Palmolive 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 | ||
|---|---|---|---|---|---|---|
| | Pension and other retiree benefits | |||||
| | Tax loss and tax credit carryforwards | |||||
| | Accrued liabilities | |||||
| | Stock-based compensation | |||||
| | Other | |||||
| | Deferred tax assets | |||||
| | Goodwill and intangible assets | |||||
| | Property, plant and equipment | |||||
| | Other | |||||
| | Deferred tax liabilities | |||||
| | Net deferred income taxes |
Source: Based on data from Colgate-Palmolive Co. Annual Reports
| Item | Description | The company |
|---|---|---|
| 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. | Colgate-Palmolive Co.'s deferred tax assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
| Net deferred income taxes | 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. | Colgate-Palmolive Co.'s net deferred income taxes declined from 2015 to 2016 and from 2016 to 2017. |
Deferred Tax Assets and Liabilities, Classification
Colgate-Palmolive 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 Other current assets) | |||||
| | Noncurrent deferred tax assets | |||||
| | Noncurrent deferred tax liabilities |
Source: Based on data from Colgate-Palmolive Co. Annual Reports
| Item | Description | The company |
|---|---|---|
| Current deferred tax assets (included in 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 | 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. | Colgate-Palmolive Co.'s noncurrent deferred tax assets increased from 2015 to 2016 but then slightly declined 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. | Colgate-Palmolive Co.'s noncurrent deferred tax liabilities increased from 2015 to 2016 but then declined significantly from 2016 to 2017. |
Analyst Adjustments: Removal of Deferred Taxes
Colgate-Palmolive 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 Total Liabilities | ||||||
| | Total liabilities (as reported) | |||||
| | Less: Noncurrent deferred tax liabilities, net | |||||
| | Total liabilities (adjusted) | |||||
| Adjustment to Total Colgate-Palmolive Company Shareholders' Equity | ||||||
| | Total Colgate-Palmolive Company shareholders' equity (as reported) | |||||
| | Less: Net deferred tax assets (liabilities) | |||||
| | Total Colgate-Palmolive Company shareholders' equity (adjusted) | |||||
| Adjustment to Net Income Attributable To Colgate-Palmolive Company | ||||||
| | Net income attributable to Colgate-Palmolive Company (as reported) | |||||
| | Add: Deferred income tax expense (benefit) | |||||
| | Net income attributable to Colgate-Palmolive Company (adjusted) | |||||
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Colgate-Palmolive 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. | Colgate-Palmolive 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. | Colgate-Palmolive Co.'s adjusted net profit margin improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Colgate-Palmolive 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. |
|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. | |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Colgate-Palmolive Co.'s adjusted ROA improved from 2015 to 2016 but then slightly deteriorated 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 ratio2 | |||||
2017 Calculations
1 Current ratio = Current assets ÷ Current liabilities
= ÷ =
2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | Colgate-Palmolive 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 Colgate-Palmolive Company (USD $ in millions) | |||||
| | Net sales (USD $ in millions) | |||||
| | Net profit margin1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income attributable to Colgate-Palmolive Company (USD $ in millions) | |||||
| | Adjusted net profit margin2 | % | % | % | % | % |
2017 Calculations
1 Net profit margin = 100 × Net income attributable to Colgate-Palmolive Company ÷ Net sales
= 100 × ÷ = %
2 Adjusted net profit margin = 100 × Adjusted net income attributable to Colgate-Palmolive Company ÷ Net sales
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Colgate-Palmolive Co.'s adjusted net profit margin improved from 2015 to 2016 but then slightly deteriorated 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 sales (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | Total asset turnover1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted total asset turnover2 | |||||
2017 Calculations
1 Total asset turnover = Net sales ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Colgate-Palmolive 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) | |||||
| | Total Colgate-Palmolive Company shareholders' equity (USD $ in millions) | |||||
| | Financial leverage1 | |||||
| Adjusted for Deferred Taxes | ||||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted total Colgate-Palmolive Company shareholders' equity (USD $ in millions) | |||||
| | Adjusted financial leverage2 | |||||
2017 Calculations
1 Financial leverage = Total assets ÷ Total Colgate-Palmolive Company shareholders' equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Colgate-Palmolive Company shareholders' equity
= ÷ =
| 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. |
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 Colgate-Palmolive Company (USD $ in millions) | |||||
| | Total Colgate-Palmolive Company shareholders' equity (USD $ in millions) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income attributable to Colgate-Palmolive Company (USD $ in millions) | |||||
| | Adjusted total Colgate-Palmolive Company shareholders' equity (USD $ in millions) | |||||
| | Adjusted ROE2 | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net income attributable to Colgate-Palmolive Company ÷ Total Colgate-Palmolive Company shareholders' equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Adjusted net income attributable to Colgate-Palmolive Company ÷ Adjusted total Colgate-Palmolive Company shareholders' equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. |
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 Colgate-Palmolive Company (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted for Deferred Taxes | ||||||
| | Adjusted net income attributable to Colgate-Palmolive Company (USD $ in millions) | |||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income attributable to Colgate-Palmolive Company ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Adjusted net income attributable to Colgate-Palmolive Company ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Colgate-Palmolive Co.'s adjusted ROA improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
