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  2. Eli Lilly & Co.
  3. Analysis of Income Taxes
 

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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

 
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Federal
Foreign
State
2017 Tax Act, provisional
Current tax expense
Federal
Foreign
State
2017 Tax Act, provisional
Deferred tax expense (benefit)
Income taxes

Source: Based on data from Eli Lilly & Co. Annual Reports

Item Description The company
Current tax expense 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. Eli Lilly & Co.'s current tax expense declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Deferred tax expense (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. Eli Lilly & Co.'s deferred tax expense (benefit) increased from 2015 to 2016 but then declined significantly from 2016 to 2017.
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. Eli Lilly & Co.'s income taxes increased from 2015 to 2016 and from 2016 to 2017.

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Effective Income Tax Rate (EITR)

Eli Lilly & Co., effective income tax rate (EITR) reconciliation

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
U.S. federal statutory tax rate % % % % %
Effective income tax rate % % % % %

Source: Based on data from Eli Lilly & Co. 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. Eli Lilly & Co.'s effective income tax rate increased from 2015 to 2016 and from 2016 to 2017.

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Components of Deferred Tax Assets and Liabilities

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

USD $ in thousands

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Compensation and benefits
Tax loss carryforwards and carrybacks
Tax credit carryforwards and carrybacks
Purchases of intangible assets
Product return reserves
Other comprehensive loss on hedging transactions
Debt
Contingent consideration
Contingencies
Intercompany profit in inventories
Other
Gross deferred tax assets
Valuation allowances
Deferred tax assets
Inventories
Intangibles
Property and equipment
Prepaid employee benefits
Financial instruments
Unremitted earnings
Deferred tax liabilities
Deferred tax assets (liabilities), net

Source: Based on data from Eli Lilly & 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. Eli Lilly & 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. Eli Lilly & Co.'s deferred tax assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017.
Deferred tax assets (liabilities), 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. Eli Lilly & Co.'s deferred tax assets (liabilities), net declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Analyst Adjustments: Removal of Deferred Taxes

Eli Lilly & Co., adjustments to financial data

USD $ in thousands

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
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
Total liabilities (adjusted)
Adjustment to Total Eli Lilly And Company Shareholders' Equity
Total Eli Lilly and Company shareholders' equity (as reported)
Less: Net deferred tax assets (liabilities)
Total Eli Lilly and Company shareholders' equity (adjusted)
Adjustment to Net Income (loss)
Net income (loss) (as reported)
Add: Deferred income tax expense (benefit)
Net income (loss) (adjusted)

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Adjusted Ratios: Removal of Deferred Taxes (Summary)

Eli Lilly & 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 % % % % %
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. Eli Lilly & Co.'s adjusted current ratio deteriorated 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. Eli Lilly & Co.'s adjusted net profit margin improved from 2015 to 2016 but then deteriorated significantly 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.		 Eli Lilly & 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. Eli Lilly & Co.'s adjusted ROE improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Eli Lilly & Co.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Current Ratio

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Current assets (USD $ in thousands)
Current liabilities (USD $ in thousands)
Current ratio1
Adjusted for Deferred Taxes
Adjusted current liabilities (USD $ in thousands)
Adjusted current ratio2

2017 Calculations

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

2 Adjusted current ratio = 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. Eli Lilly & Co.'s adjusted current ratio deteriorated from 2015 to 2016 and from 2016 to 2017.

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Adjusted Net Profit Margin

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) (USD $ in thousands)
Revenue (USD $ in thousands)
Net profit margin1 % % % % %
Adjusted for Deferred Taxes
Adjusted net income (loss) (USD $ in thousands)
Adjusted net profit margin2 % % % % %

2017 Calculations

1 Net profit margin = 100 × Net income (loss) ÷ Revenue
= 100 × ÷ = %

2 Adjusted net profit margin = 100 × Adjusted net income (loss) ÷ Revenue
= 100 × ÷ = %

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 improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Financial Leverage

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Total assets (USD $ in thousands)
Total Eli Lilly and Company shareholders' equity (USD $ in thousands)
Financial leverage1
Adjusted for Deferred Taxes
Adjusted total Eli Lilly and Company shareholders' equity (USD $ in thousands)
Adjusted financial leverage2

2017 Calculations

1 Financial leverage = Total assets ÷ Total Eli Lilly and Company shareholders' equity
= ÷ =

2 Adjusted financial leverage = Total assets ÷ Adjusted total Eli Lilly and 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.		 Eli Lilly & Co.'s adjusted financial leverage increased from 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Equity (ROE)

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) (USD $ in thousands)
Total Eli Lilly and Company shareholders' equity (USD $ in thousands)
ROE1 % % % % %
Adjusted for Deferred Taxes
Adjusted net income (loss) (USD $ in thousands)
Adjusted total Eli Lilly and Company shareholders' equity (USD $ in thousands)
Adjusted ROE2 % % % % %

2017 Calculations

1 ROE = 100 × Net income (loss) ÷ Total Eli Lilly and Company shareholders' equity
= 100 × ÷ = %

2 Adjusted ROE = 100 × Adjusted net income (loss) ÷ Adjusted total Eli Lilly and Company shareholders' equity
= 100 × ÷ = %

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 improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Return on Assets (ROA)

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (loss) (USD $ in thousands)
Total assets (USD $ in thousands)
ROA1 % % % % %
Adjusted for Deferred Taxes
Adjusted net income (loss) (USD $ in thousands)
Adjusted ROA2 % % % % %

2017 Calculations

1 ROA = 100 × Net income (loss) ÷ Total assets
= 100 × ÷ = %

2 Adjusted ROA = 100 × Adjusted net income (loss) ÷ Total assets
= 100 × ÷ = %

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 improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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