Microsoft Excel LibreOffice Calc

Estée Lauder Cos. Inc. (NYSE:EL)

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Analysis of Income Taxes

Advanced level


Accounting Policy on Income Taxes

Estée Lauder calculates and provides for income taxes in each tax jurisdiction in which it operates. As the application of various tax laws relevant to Estée Lauder’s global business is often uncertain, significant judgment is required in determining Estée Lauder’s annual tax expense and in evaluating Estée Lauder’s tax positions. The provision for income taxes includes the amounts payable or refundable for the current year, the effect of deferred taxes and impacts from uncertain tax positions.

Estée Lauder accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis, net operating losses, tax credit and other carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates when the assets and liabilities are expected to be realized or settled. Estée Lauder regularly reviews deferred tax assets for realizability and establishes valuation allowances based on available evidence including historical operating losses, projected future taxable income, expected timing of the reversals of existing temporary differences, and appropriate tax planning strategies. If Estée Lauder’s assessment of the realizability of a deferred tax asset changes, an increase to a valuation allowance will result in a reduction of net earnings at that time, while the reduction of a valuation allowance will result in an increase of net earnings at that time. With respect to the new global intangible low-taxed income (“GILTI”) provision, companies are permitted to make an accounting policy election to record taxes as period costs as incurred or to factor such amounts into the measurement of deferred taxes. Estée Lauder has elected to record these taxes as period costs as they are incurred.

Estée Lauder provides tax reserves for U.S. federal, state, local and foreign tax exposures relating to periods subject to audit. The development of reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective critical estimate. Estée Lauder assesses its tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, Estée Lauder has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information. For those tax positions where it is more-likely-than-not that a tax benefit will not be sustained, no tax benefit has been recognized in the consolidated financial statements. Estée Lauder classifies applicable interest and penalties as a component of the provision for income taxes. Although the outcome relating to these exposures is uncertain, in management’s opinion adequate provisions for income taxes have been made for estimable potential liabilities emanating from these exposures. If actual outcomes differ materially from these estimates, they could have a material impact on Estée Lauder’s consolidated net earnings.

Source: 10-K (filing date: 2019-08-23).


Income Tax Expense (Benefit)

Estée Lauder Cos. Inc., income tax expense (benefit), continuing operations

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
Federal
Foreign
State and local
Current
Federal
Foreign
State and local
Deferred
Provision for income taxes

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

Item Description The company
Current Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Estée Lauder Cos. Inc.’s current increased from 2017 to 2018 but then slightly decreased from 2018 to 2019 not reaching 2017 level.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Estée Lauder Cos. Inc.’s deferred increased from 2017 to 2018 but then slightly decreased from 2018 to 2019 not reaching 2017 level.
Provision for income taxes Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Estée Lauder Cos. Inc.’s provision for income taxes increased from 2017 to 2018 but then slightly decreased from 2018 to 2019 not reaching 2017 level.

Effective Income Tax Rate (EITR)

Estée Lauder Cos. Inc., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
Provision for income taxes at statutory rate
State and local income taxes, net of federal tax benefit
Stock-based compensation arrangements, excess tax benefits
Taxation of foreign operations
China deferred tax asset valuation allowance reversal
Income tax reserve adjustments
Other, net
Effective tax rate, before TCJA net income tax impact
TCJA net income tax impact
Effective tax rate

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

Item Description The company
Effective tax rate, before TCJA net income tax impact Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Estée Lauder Cos. Inc.’s effective tax rate, before TCJA net income tax impact decreased from 2017 to 2018 but then increased from 2018 to 2019 not reaching 2017 level.

Components of Deferred Tax Assets and Liabilities

Estée Lauder Cos. Inc., components of deferred tax assets and liabilities

US$ in millions

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
Compensation related expenses
Inventory obsolescence and other inventory related reserves
Retirement benefit obligations
Various accruals not currently deductible
Net operating loss, credit and other carryforwards
Unrecognized state tax benefits and accrued interest
Other differences between tax and financial statement values
Deferred tax assets, gross
Valuation allowance for deferred tax assets
Deferred tax assets
Depreciation and amortization
Other differences between tax and financial statement values
Deferred tax liabilities
Net deferred tax assets (liabilities)

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

Item Description The company
Deferred tax assets, gross Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Estée Lauder Cos. Inc.’s deferred tax assets, gross decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.
Deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Estée Lauder Cos. Inc.’s deferred tax assets decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.
Net deferred tax assets (liabilities) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. Estée Lauder Cos. Inc.’s net deferred tax assets (liabilities) decreased from 2017 to 2018 but then increased from 2018 to 2019 not reaching 2017 level.

Deferred Tax Assets and Liabilities, Classification

Estée Lauder Cos. Inc., deferred tax assets and liabilities, classification

US$ in millions

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
Current net deferred tax assets (included in Prepaid expenses and other current assets)
Noncurrent net deferred tax assets (included in Other assets)

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

Item Description The company
Noncurrent net deferred tax assets (included in Other assets) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent. Estée Lauder Cos. Inc.’s noncurrent net deferred tax assets (included in Other assets) decreased from 2017 to 2018 but then increased from 2018 to 2019 not reaching 2017 level.

Adjustments to Financial Statements: Removal of Deferred Taxes

Estée Lauder Cos. Inc., adjustments to financial statements

US$ in millions

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
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 Stockholders’ Equity, The Estée Lauder Companies Inc.
Stockholders’ equity, The Estée Lauder Companies Inc. (as reported)
Less: Net deferred tax assets (liabilities)
Stockholders’ equity, The Estée Lauder Companies Inc. (adjusted)
Adjustment to Net Earnings Attributable To The Estée Lauder Companies Inc.
Net earnings attributable to The Estée Lauder Companies Inc. (as reported)
Add: Deferred income tax expense (benefit)
Net earnings attributable to The Estée Lauder Companies Inc. (adjusted)

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).


Estée Lauder Cos. Inc., Financial Data: Reported vs. Adjusted


Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Estée Lauder Cos. Inc., adjusted financial ratios

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
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

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

Financial ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Estée Lauder Cos. Inc.’s adjusted current ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Estée Lauder Cos. Inc.’s adjusted net profit margin ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Estée Lauder Cos. Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 and from 2018 to 2019.
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.
Estée Lauder Cos. Inc.’s adjusted financial leverage ratio decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Estée Lauder Cos. Inc.’s adjusted ROE improved from 2017 to 2018 and from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Estée Lauder Cos. Inc.’s adjusted ROA improved from 2017 to 2018 and from 2018 to 2019.

Estée Lauder Cos. Inc., Financial Ratios: Reported vs. Adjusted


Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
As Reported
Selected Financial Data (US$ in millions)
Current assets
Current liabilities
Liquidity Ratio
Current ratio1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted current assets
Current liabilities
Liquidity Ratio
Adjusted current ratio2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

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

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= ÷ =

Liquidity ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Estée Lauder Cos. Inc.’s adjusted current ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings attributable to The Estée Lauder Companies Inc.
Net sales
Profitability Ratio
Net profit margin1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings attributable to The Estée Lauder Companies Inc.
Net sales
Profitability Ratio
Adjusted net profit margin2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

1 Net profit margin = 100 × Net earnings attributable to The Estée Lauder Companies Inc. ÷ Net sales
= 100 × ÷ =

2 Adjusted net profit margin = 100 × Adjusted net earnings attributable to The Estée Lauder Companies Inc. ÷ Net sales
= 100 × ÷ =

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Estée Lauder Cos. Inc.’s adjusted net profit margin ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
As Reported
Selected Financial Data (US$ in millions)
Net sales
Total assets
Activity Ratio
Total asset turnover1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Net sales
Adjusted total assets
Activity Ratio
Adjusted total asset turnover2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= ÷ =

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Estée Lauder Cos. Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
As Reported
Selected Financial Data (US$ in millions)
Total assets
Stockholders’ equity, The Estée Lauder Companies Inc.
Solvency Ratio
Financial leverage1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets
Adjusted stockholders’ equity, The Estée Lauder Companies Inc.
Solvency Ratio
Adjusted financial leverage2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity, The Estée Lauder Companies Inc.
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity, The Estée Lauder Companies Inc.
= ÷ =

Solvency 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.
Estée Lauder Cos. Inc.’s adjusted financial leverage ratio decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings attributable to The Estée Lauder Companies Inc.
Stockholders’ equity, The Estée Lauder Companies Inc.
Profitability Ratio
ROE1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings attributable to The Estée Lauder Companies Inc.
Adjusted stockholders’ equity, The Estée Lauder Companies Inc.
Profitability Ratio
Adjusted ROE2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

1 ROE = 100 × Net earnings attributable to The Estée Lauder Companies Inc. ÷ Stockholders’ equity, The Estée Lauder Companies Inc.
= 100 × ÷ =

2 Adjusted ROE = 100 × Adjusted net earnings attributable to The Estée Lauder Companies Inc. ÷ Adjusted stockholders’ equity, The Estée Lauder Companies Inc.
= 100 × ÷ =

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Estée Lauder Cos. Inc.’s adjusted ROE improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Jun 30, 2019 Jun 30, 2018 Jun 30, 2017 Jun 30, 2016 Jun 30, 2015 Jun 30, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings attributable to The Estée Lauder Companies Inc.
Total assets
Profitability Ratio
ROA1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings attributable to The Estée Lauder Companies Inc.
Adjusted total assets
Profitability Ratio
Adjusted ROA2

Based on: 10-K (filing date: 2019-08-23), 10-K (filing date: 2018-08-24), 10-K (filing date: 2017-08-25), 10-K (filing date: 2016-08-24), 10-K (filing date: 2015-08-20), 10-K (filing date: 2014-08-20).

2019 Calculations

1 ROA = 100 × Net earnings attributable to The Estée Lauder Companies Inc. ÷ Total assets
= 100 × ÷ =

2 Adjusted ROA = 100 × Adjusted net earnings attributable to The Estée Lauder Companies Inc. ÷ Adjusted total assets
= 100 × ÷ =

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Estée Lauder Cos. Inc.’s adjusted ROA improved from 2017 to 2018 and from 2018 to 2019.