Microsoft Excel LibreOffice Calc

Eli Lilly & Co. (LLY)

Analysis of Income Taxes

Difficulty: Advanced

Income Tax Expense (Benefit)

Eli Lilly & Co., income tax expense (benefit), continuing operations

USD $ in thousands

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Federal (54,300) (100,600) (57,000) 660,500  168,900 
Foreign 80,000  38,500  378,900  422,000  406,200 
State 9,700  4,000  (125,000) 47,500  (2,100)
2017 Tax Act 201,500  3,247,500  —  —  — 
Current tax expense 236,900  3,189,400  196,900  1,130,000  573,000 
Federal 64,000  801,500  517,000  (689,600) (83,300)
Foreign 285,600  (256,300) (83,300) (66,000) 120,200 
State 3,400  400  5,800  7,200  (100)
2017 Tax Act (26,200) (1,333,500) —  —  — 
Deferred tax expense (benefit) 326,800  (787,900) 439,500  (748,400) 36,800 
Income taxes 563,700  2,401,500  636,400  381,600  609,800 

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

Item Description The company
Current tax expense Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Eli Lilly & Co.’s current tax expense increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.
Deferred tax expense (benefit) Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Eli Lilly & Co.’s deferred tax expense (benefit) declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.
Income taxes Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Eli Lilly & Co.’s income taxes increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Effective Income Tax Rate (EITR)

Eli Lilly & Co., 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
U.S. federal statutory tax rate 21.00% 35.00% 35.00% 35.00% 35.00%
Effective income tax rate, before 2017 Tax Act 10.23% 22.19% 18.86% 13.68% 20.32%
Effective income tax rate 14.85% 109.29% 18.86% 13.68% 20.32%

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

Item Description The company
Effective income tax rate, before 2017 Tax Act Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Eli Lilly & Co.’s effective income tax rate, before 2017 Tax Act increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Components of Deferred Tax Assets and Liabilities

Eli Lilly & Co., components of deferred tax assets and liabilities

USD $ in thousands

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Purchases of intangible assets 2,655,900  443,100  620,300  637,200  473,300 
Compensation and benefits 814,200  1,021,700  1,126,000  1,034,600  897,300 
Tax credit carryforwards and carrybacks 365,200  473,000  458,900  294,200  279,400 
Tax loss carryforwards and carrybacks 271,700  501,400  327,300  247,800  265,500 
Product return reserves 100,500  88,400  128,100  212,100  241,800 
Other comprehensive loss on hedging transactions 68,900  68,900  123,300  129,700  — 
Debt 40,300  53,500  95,300  111,300  176,000 
Contingent consideration 17,700  41,800  142,700  214,600  68,900 
Other 714,700  555,800  587,300  628,600  633,300 
Gross deferred tax assets 5,049,100  3,247,600  3,609,200  3,510,100  3,035,500 
Valuation allowances (596,300) (709,100) (648,300) (590,300) (601,100)
Deferred tax assets 4,452,800  2,538,500  2,960,900  2,919,800  2,434,400 
Earnings of foreign subsidiaries (1,692,300) (16,600) (673,600) (218,800) (737,100)
Inventories (658,400) (654,800) (955,500) (771,300) (684,600)
Property and equipment (311,700) (282,100) (398,600) (411,600) (424,700)
Prepaid employee benefits (240,100) (231,500) (265,300) (317,800) (275,800)
Intangibles (250,500) (314,600) (604,200) (756,300) (582,600)
Financial instruments (22,700) (41,500) (279,300) (152,600) (161,500)
Deferred tax liabilities (3,175,700) (1,541,100) (3,176,500) (2,628,400) (2,866,300)
Deferred tax assets (liabilities), net 1,277,100  997,400  (215,600) 291,400  (431,900)

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

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

Analyst Adjustments: Removal of Deferred Taxes

Eli Lilly & Co., adjustments to financial data

USD $ in thousands

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Total Assets
Total assets (as reported) 43,908,400  44,981,000  38,805,900  35,568,900  37,178,200 
Less: Noncurrent deferred tax assets, net 2,657,700  1,166,400  —  —  — 
Total assets (adjusted) 41,250,700  43,814,600  38,805,900  35,568,900  37,178,200 
Adjustment to Current Liabilities
Current liabilities (as reported) 11,888,100  14,535,900  10,986,600  8,229,600  11,207,500 
Less: Current deferred tax liabilities, net —  —  —  —  1,466,500 
Current liabilities (adjusted) 11,888,100  14,535,900  10,986,600  8,229,600  9,741,000 
Adjustment to Total Liabilities
Total liabilities (as reported) 32,999,300  33,313,100  24,725,400  20,978,600  21,790,100 
Less: Current deferred tax liabilities, net —  —  —  —  1,466,500 
Total liabilities (adjusted) 32,999,300  33,313,100  24,725,400  20,978,600  20,323,600 
Adjustment to Total Eli Lilly And Company Shareholders’ Equity
Total Eli Lilly and Company shareholders’ equity (as reported) 9,828,700  11,592,200  14,007,700  14,571,300  15,373,200 
Less: Net deferred tax assets (liabilities) 1,277,100  997,400  (215,600) 291,400  (431,900)
Total Eli Lilly and Company shareholders’ equity (adjusted) 8,551,600  10,594,800  14,223,300  14,279,900  15,805,100 
Adjustment to Net Income (loss)
Net income (loss) (as reported) 3,232,000  (204,100) 2,737,600  2,408,400  2,390,500 
Add: Deferred income tax expense (benefit) 326,800  (787,900) 439,500  (748,400) 36,800 
Net income (loss) (adjusted) 3,558,800  (992,000) 3,177,100  1,660,000  2,427,300 

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

Eli Lilly & Co., Financial Data: Reported vs. Adjusted

Adjusted Ratios: Removal of Deferred Taxes (Summary)

Eli Lilly & Co., 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 1.73 1.32 1.37 1.53 1.09
Adjusted current ratio 1.73 1.32 1.37 1.53 1.25
Net Profit Margin
Reported net profit margin 13.16% -0.89% 12.90% 12.07% 12.19%
Adjusted net profit margin 14.49% -4.34% 14.97% 8.32% 12.37%
Total Asset Turnover
Reported total asset turnover 0.56 0.51 0.55 0.56 0.53
Adjusted total asset turnover 0.60 0.52 0.55 0.56 0.53
Financial Leverage
Reported financial leverage 4.47 3.88 2.77 2.44 2.42
Adjusted financial leverage 4.82 4.14 2.73 2.49 2.35
Return on Equity (ROE)
Reported ROE 32.88% -1.76% 19.54% 16.53% 15.55%
Adjusted ROE 41.62% -9.36% 22.34% 11.62% 15.36%
Return on Assets (ROA)
Reported ROA 7.36% -0.45% 7.05% 6.77% 6.43%
Adjusted ROA 8.63% -2.26% 8.19% 4.67% 6.53%

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Eli Lilly & Co.’s adjusted current ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Eli Lilly & Co.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Eli Lilly & Co.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 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.		 Eli Lilly & Co.’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. Eli Lilly & Co.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Eli Lilly & Co.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Eli Lilly & Co., 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 (USD $ in thousands)
Current assets 20,549,600  19,202,100  15,101,400  12,573,600  12,179,800 
Current liabilities 11,888,100  14,535,900  10,986,600  8,229,600  11,207,500 
Ratio
Current ratio1 1.73 1.32 1.37 1.53 1.09
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in thousands)
Current assets 20,549,600  19,202,100  15,101,400  12,573,600  12,179,800 
Adjusted current liabilities 11,888,100  14,535,900  10,986,600  8,229,600  9,741,000 
Ratio
Adjusted current ratio2 1.73 1.32 1.37 1.53 1.25

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

2018 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= 20,549,600 ÷ 11,888,100 = 1.73

2 Adjusted current ratio = Current assets ÷ Adjusted current liabilities
= 20,549,600 ÷ 11,888,100 = 1.73

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Eli Lilly & Co.’s adjusted current ratio deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

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 (USD $ in thousands)
Net income (loss) 3,232,000  (204,100) 2,737,600  2,408,400  2,390,500 
Revenue 24,555,700  22,871,300  21,222,100  19,958,700  19,615,600 
Ratio
Net profit margin1 13.16% -0.89% 12.90% 12.07% 12.19%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in thousands)
Adjusted net income (loss) 3,558,800  (992,000) 3,177,100  1,660,000  2,427,300 
Revenue 24,555,700  22,871,300  21,222,100  19,958,700  19,615,600 
Ratio
Adjusted net profit margin2 14.49% -4.34% 14.97% 8.32% 12.37%

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

2018 Calculations

1 Net profit margin = 100 × Net income (loss) ÷ Revenue
= 100 × 3,232,000 ÷ 24,555,700 = 13.16%

2 Adjusted net profit margin = 100 × Adjusted net income (loss) ÷ Revenue
= 100 × 3,558,800 ÷ 24,555,700 = 14.49%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Eli Lilly & Co.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

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 (USD $ in thousands)
Revenue 24,555,700  22,871,300  21,222,100  19,958,700  19,615,600 
Total assets 43,908,400  44,981,000  38,805,900  35,568,900  37,178,200 
Ratio
Total asset turnover1 0.56 0.51 0.55 0.56 0.53
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in thousands)
Revenue 24,555,700  22,871,300  21,222,100  19,958,700  19,615,600 
Adjusted total assets 41,250,700  43,814,600  38,805,900  35,568,900  37,178,200 
Ratio
Adjusted total asset turnover2 0.60 0.52 0.55 0.56 0.53

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

2018 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= 24,555,700 ÷ 43,908,400 = 0.56

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= 24,555,700 ÷ 41,250,700 = 0.60

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Eli Lilly & Co.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

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 (USD $ in thousands)
Total assets 43,908,400  44,981,000  38,805,900  35,568,900  37,178,200 
Total Eli Lilly and Company shareholders’ equity 9,828,700  11,592,200  14,007,700  14,571,300  15,373,200 
Ratio
Financial leverage1 4.47 3.88 2.77 2.44 2.42
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in thousands)
Adjusted total assets 41,250,700  43,814,600  38,805,900  35,568,900  37,178,200 
Adjusted total Eli Lilly and Company shareholders’ equity 8,551,600  10,594,800  14,223,300  14,279,900  15,805,100 
Ratio
Adjusted financial leverage2 4.82 4.14 2.73 2.49 2.35

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

2018 Calculations

1 Financial leverage = Total assets ÷ Total Eli Lilly and Company shareholders’ equity
= 43,908,400 ÷ 9,828,700 = 4.47

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Eli Lilly and Company shareholders’ equity
= 41,250,700 ÷ 8,551,600 = 4.82

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.		 Eli Lilly & Co.’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 (USD $ in thousands)
Net income (loss) 3,232,000  (204,100) 2,737,600  2,408,400  2,390,500 
Total Eli Lilly and Company shareholders’ equity 9,828,700  11,592,200  14,007,700  14,571,300  15,373,200 
Ratio
ROE1 32.88% -1.76% 19.54% 16.53% 15.55%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in thousands)
Adjusted net income (loss) 3,558,800  (992,000) 3,177,100  1,660,000  2,427,300 
Adjusted total Eli Lilly and Company shareholders’ equity 8,551,600  10,594,800  14,223,300  14,279,900  15,805,100 
Ratio
Adjusted ROE2 41.62% -9.36% 22.34% 11.62% 15.36%

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

2018 Calculations

1 ROE = 100 × Net income (loss) ÷ Total Eli Lilly and Company shareholders’ equity
= 100 × 3,232,000 ÷ 9,828,700 = 32.88%

2 Adjusted ROE = 100 × Adjusted net income (loss) ÷ Adjusted total Eli Lilly and Company shareholders’ equity
= 100 × 3,558,800 ÷ 8,551,600 = 41.62%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Eli Lilly & Co.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

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 (USD $ in thousands)
Net income (loss) 3,232,000  (204,100) 2,737,600  2,408,400  2,390,500 
Total assets 43,908,400  44,981,000  38,805,900  35,568,900  37,178,200 
Ratio
ROA1 7.36% -0.45% 7.05% 6.77% 6.43%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in thousands)
Adjusted net income (loss) 3,558,800  (992,000) 3,177,100  1,660,000  2,427,300 
Adjusted total assets 41,250,700  43,814,600  38,805,900  35,568,900  37,178,200 
Ratio
Adjusted ROA2 8.63% -2.26% 8.19% 4.67% 6.53%

Based on: 10-K (filing date: 2019-02-19), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-21), 10-K (filing date: 2016-02-19), 10-K (filing date: 2015-02-19).

2018 Calculations

1 ROA = 100 × Net income (loss) ÷ Total assets
= 100 × 3,232,000 ÷ 43,908,400 = 7.36%

2 Adjusted ROA = 100 × Adjusted net income (loss) ÷ Adjusted total assets
= 100 × 3,558,800 ÷ 41,250,700 = 8.63%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Eli Lilly & Co.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.