HP Inc. (NYSE:HPQ)

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Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

HP Inc., effective income tax rate (EITR) reconciliation

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
U.S. federal statutory income tax rate	23.30%	35.00%	35.00%	35.00%	35.00%	35.00%
State income taxes, net of federal tax benefit	0.50%	1.40%	1.10%	-4.60%	0.40%	0.10%
Lower rates in other jurisdictions, net	-10.90%	-13.20%	-9.30%	-16.20%	-12.90%	-24.50%
U.S. Tax Reform impacts	-35.80%	0.00%	0.00%	0.00%	0.00%	0.00%
Research and development (R&D) credit	-0.70%	-0.50%	-2.40%	0.00%	0.00%	-0.70%
Valuation allowances	-9.30%	-1.90%	-1.20%	-23.40%	1.70%	3.80%
Uncertain tax positions and audit settlements	-50.30%	0.40%	11.70%	10.10%	-2.30%	4.10%
Indemnification related items	5.20%	-0.30%	-4.10%	0.00%	0.00%	0.00%
Other, net	1.20%	2.00%	-1.70%	2.90%	1.60%	3.70%
HP’s effective tax rate	-76.80%	22.90%	29.10%	3.80%	23.50%	21.50%

The effective income tax rate (EITR) exhibited significant volatility between 2013 and 2018, characterized by periods of relative stability interrupted by sharp fluctuations and a final, substantial decline into negative territory. While the U.S. federal statutory rate remained constant at 35.00% for the majority of the period, the actual tax burden was consistently lowered by foreign jurisdiction rates and specific tax credits, until a major structural shift occurred in 2018.

Statutory and Effective Rate Variance: A persistent gap existed between the U.S. federal statutory rate and the EITR. From 2013 to 2017, the EITR fluctuated between 3.80% and 29.10%, consistently remaining below the 35.00% statutory benchmark. This variance was primarily driven by the consistent benefit of lower tax rates in foreign jurisdictions, which reduced the EITR by an average of approximately 14% annually over the six-year period.
Impact of Volatile Tax Adjustments: Two primary drivers contributed to the intermittent instability of the EITR: valuation allowances and uncertain tax positions. In 2015, a significant valuation allowance of -23.40% contributed to a sharp drop in the EITR to 3.80%. Conversely, in 2016, the EITR spiked to 29.10%, driven by a substantial increase in uncertain tax positions and audit settlements, which added 11.70% to the tax burden.
2018 Fiscal Transition: The fiscal year ending October 31, 2018, marked a fundamental shift in the tax profile. The statutory rate decreased to 23.30%, and the EITR plummeted to -76.80%. This anomalous result was the product of several coinciding factors: a -35.80% impact from U.S. Tax Reform, a massive -50.30% adjustment regarding uncertain tax positions and audit settlements, and a -9.30% valuation allowance. These combined benefits far outweighed the statutory obligations, resulting in a net tax benefit for the period.
Consistent Tax Mitigants: Certain factors provided a steady downward pressure on the EITR throughout the analysis period. Lower rates in other jurisdictions remained the most consistent reducer, while research and development (R&D) credits provided modest, periodic reductions, most notably in 2016 at -2.40%.

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Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

HP Inc., components of deferred tax assets and liabilities

US$ in millions

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
Loss and credit carryforwards	8,204)	9,914)	8,725)	9,202)	11,853)	14,068)
Intercompany transactions, profit in inventory	—)	—)	—)	147)	136)	125)
Intercompany transactions, excluding inventory	994)	1,901)	2,560)	6,952)	4,403)	1,923)
Fixed assets	151)	256)	274)	377)	383)	289)
Warranty	194)	219)	248)	549)	616)	622)
Employee and retiree benefits	401)	519)	592)	1,872)	2,790)	2,350)
Deferred revenue	164)	231)	206)	1,235)	1,143)	1,119)
Other	422)	511)	556)	2,784)	2,398)	2,320)
Gross deferred tax assets	10,530)	13,551)	13,161)	23,118)	23,722)	22,816)
Valuation allowances	(7,906)	(8,807)	(8,520)	(9,878)	(11,915)	(11,390)
Deferred tax assets	2,624)	4,744)	4,641)	13,240)	11,807)	11,426)
Unremitted earnings of foreign subsidiaries	(31)	(5,554)	(5,179)	(8,450)	(7,828)	(7,469)
Accounts receivable allowance	—)	—)	—)	(1)	(1)	(1)
Intangible assets	(229)	(209)	(213)	(546)	(596)	(886)
Deferred revenue	—)	—)	—)	(5)	(12)	(19)
Other	(33)	(49)	(111)	(1,588)	(1,284)	(855)
Deferred tax liabilities	(293)	(5,812)	(5,503)	(10,590)	(9,721)	(9,230)
Net deferred tax assets and liabilities	2,331)	(1,068)	(862)	2,650)	2,086)	2,196)

The analysis of deferred tax components from 2013 to 2018 reveals a significant contraction in both gross deferred tax assets and deferred tax liabilities, reflecting substantial changes in the company's tax position and the regulatory environment.

Gross Deferred Tax Assets and Valuation Allowances: Gross deferred tax assets experienced a marked decline, falling from 22,816 million USD in 2013 to 10,530 million USD by 2018. This reduction was primarily driven by a decrease in loss and credit carryforwards, which declined from 14,068 million USD to 8,204 million USD over the period. Other contributing factors include a sharp reduction in employee and retiree benefit assets, which dropped from a peak of 2,790 million USD in 2014 to 401 million USD in 2018, and a significant decrease in deferred revenue assets after 2015. Valuation allowances remained substantial throughout the period, although they trended downward from 11,390 million USD in 2013 to 7,906 million USD in 2018, indicating a shifting assessment of the realizability of these assets.
Deferred Tax Liabilities and Foreign Earnings: Total deferred tax liabilities decreased precipitously from 9,230 million USD in 2013 to 293 million USD in 2018. The most prominent driver of this trend was the collapse of liabilities associated with unremitted earnings of foreign subsidiaries. These liabilities peaked at 8,450 million USD in 2015 before plummeting to 31 million USD by October 31, 2018. This suggests a major repatriation of foreign earnings or a fundamental change in the tax treatment of overseas profits. Other liability components, such as intangible assets and other miscellaneous liabilities, also showed a general downward trend, contributing to the overall reduction in deferred tax obligations.
Net Deferred Tax Position: The net deferred tax position fluctuated between a net asset and a net liability status over the six-year period. From 2013 to 2015, the company maintained a net deferred tax asset position, peaking at 2,650 million USD in 2015. This shifted to a net liability position in 2016 and 2017, reaching 1,068 million USD in liabilities by 2017. However, by 2018, the position reverted to a net asset of 2,331 million USD, largely due to the near-elimination of the deferred tax liabilities related to foreign subsidiaries.

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Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

HP Inc., deferred tax assets and liabilities, classification

US$ in millions

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
Current deferred tax assets	—)	—)	—)	2,242)	2,754)	3,893)
Current deferred tax liabilities	—)	—)	—)	168)	284)	375)
Long-term deferred tax assets	2,431)	342)	254)	871)	740)	1,346)
Long-term deferred tax liabilities	100)	1,410)	1,116)	295)	1,124)	2,668)

The company's deferred tax profile exhibits a significant transition between 2013 and 2018, characterized by a substantial reduction in total tax liabilities and a volatile trend in deferred tax assets, ultimately resulting in a strong net deferred tax asset position by the end of the period.

Current Deferred Tax Positions: A consistent downward trend is observed in current deferred tax items from 2013 through 2015. Current deferred tax assets declined from 3,893 million USD to 2,242 million USD, while current deferred tax liabilities decreased from 375 million USD to 168 million USD. This indicates a reduction in the scale of short-term temporary differences between accounting and tax treatments.
Long-term Deferred Tax Assets: Long-term deferred tax assets demonstrated significant volatility. After a period of decline from 1,346 million USD in 2013 to a low of 254 million USD in 2016, the balance grew rapidly, reaching 2,431 million USD by October 31, 2018. This sharp increase suggests the recognition of significant future tax benefits or changes in tax valuations.
Long-term Deferred Tax Liabilities: Long-term deferred tax liabilities showed a general contraction over the observed timeframe. Starting at 2,668 million USD in 2013, the liabilities dropped to 295 million USD by 2015, followed by a temporary rebound to 1,410 million USD in 2017. By October 31, 2018, these liabilities were nearly eliminated, falling to 100 million USD.
Net Deferred Tax Position: The balance between deferred tax assets and liabilities shifted markedly. In 2013, the net position was heavily influenced by a large long-term liability of 2,668 million USD. By 2018, the position reversed significantly, with long-term assets totaling 2,431 million USD against minimal long-term liabilities of 100 million USD.

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HP Inc., Financial Data: Reported vs. Adjusted

Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

HP Inc., adjustments to financial statements

US$ in millions

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
Adjustment to Current Assets
Current assets (as reported)	21,387)	22,318)	18,468)	51,787)	50,145)	50,364)
Less: Current deferred tax assets, net	—)	—)	—)	2,242)	2,754)	3,893)
Current assets (adjusted)	21,387)	22,318)	18,468)	49,545)	47,391)	46,471)
Adjustment to Total Assets
Total assets (as reported)	34,622)	32,913)	29,010)	106,882)	103,206)	105,676)
Less: Current deferred tax assets, net	—)	—)	—)	2,242)	2,754)	3,893)
Less: Noncurrent deferred tax assets, net	2,431)	342)	254)	871)	740)	1,346)
Total assets (adjusted)	32,191)	32,571)	28,756)	103,769)	99,712)	100,437)
Adjustment to Current Liabilities
Current liabilities (as reported)	25,131)	22,412)	18,808)	42,191)	43,735)	45,521)
Less: Current deferred tax liabilities, net	—)	—)	—)	168)	284)	375)
Current liabilities (adjusted)	25,131)	22,412)	18,808)	42,023)	43,451)	45,146)
Adjustment to Total Liabilities
Total liabilities (as reported)	35,261)	36,321)	32,899)	78,731)	76,079)	78,020)
Less: Current deferred tax liabilities, net	—)	—)	—)	168)	284)	375)
Less: Noncurrent deferred tax liabilities, net	100)	1,410)	1,116)	295)	1,124)	2,668)
Total liabilities (adjusted)	35,161)	34,911)	31,783)	78,268)	74,671)	74,977)
Adjustment to Total HP Stockholders’ Equity (deficit)
Total HP stockholders’ equity (deficit) (as reported)	(639)	(3,408)	(3,889)	27,768)	26,731)	27,269)
Less: Net deferred tax assets (liabilities)	2,331)	(1,068)	(862)	2,650)	2,086)	2,196)
Total HP stockholders’ equity (deficit) (adjusted)	(2,970)	(2,340)	(3,027)	25,118)	24,645)	25,073)
Adjustment to Net Earnings
Net earnings (as reported)	5,327)	2,526)	2,496)	4,554)	5,013)	5,113)
Add: Deferred income tax expense (benefit)	(3,654)	239)	403)	(701)	(33)	(410)
Net earnings (adjusted)	1,673)	2,765)	2,899)	3,853)	4,980)	4,703)

An analysis of the financial data from 2013 to 2018 reveals a consistent divergence between reported and adjusted figures resulting from the removal of deferred taxes. The most significant structural shift in the balance sheet occurred between 2015 and 2016, characterized by a substantial contraction in total assets and liabilities, though the impact of tax adjustments persisted across both the pre- and post-contraction periods.

Impact on Assets: From 2013 to 2015, reported current assets were consistently higher than adjusted current assets, with the variance narrowing over time. Following 2015, reported and adjusted current assets converged and remained identical through 2018. Total assets consistently remained higher in reported figures than in adjusted figures throughout the entire six-year period, indicating that deferred tax assets contributed a positive value to the reported total asset base.
Impact on Liabilities: Reported current liabilities were slightly higher than adjusted current liabilities between 2013 and 2015, becoming identical from 2016 onward. A similar pattern is observed in total liabilities, where reported values generally exceeded adjusted values. This suggests that the removal of deferred tax liabilities reduced the overall liability profile of the organization.
Stockholders' Equity and Deficit: The adjustment for deferred taxes generally resulted in a reduction of stockholders' equity. Between 2013 and 2015, adjusted equity was consistently lower than reported equity. From 2016 to 2018, the company transitioned into a stockholders' deficit position. In 2016 and 2018, the adjusted deficit was more severe than the reported deficit, whereas in 2017, the adjusted deficit was less severe than the reported figure.
Net Earnings Volatility: The impact of removing deferred taxes on net earnings demonstrates significant volatility. Between 2013 and 2015, adjusted net earnings were generally lower than reported earnings. This trend reversed in 2016 and 2017, where adjusted earnings exceeded reported earnings. However, a sharp divergence occurred in 2018, where adjusted net earnings of 1,673 million US$ represented a substantial decrease from the reported net earnings of 5,327 million US$, indicating a significant negative adjustment related to taxes in the final year of the analysis.

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HP Inc., Financial Ratios: Reported vs. Adjusted

Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

HP Inc., adjusted financial ratios

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
Current Ratio
Reported current ratio	0.85	1.00	0.98	1.23	1.15	1.11
Adjusted current ratio	0.85	1.00	0.98	1.18	1.09	1.03
Net Profit Margin
Reported net profit margin	9.11%	4.85%	5.17%	4.41%	4.50%	4.55%
Adjusted net profit margin	2.86%	5.31%	6.01%	3.73%	4.47%	4.19%
Total Asset Turnover
Reported total asset turnover	1.69	1.58	1.66	0.97	1.08	1.06
Adjusted total asset turnover	1.82	1.60	1.68	1.00	1.12	1.12
Financial Leverage
Reported financial leverage	—	—	—	3.85	3.86	3.88
Adjusted financial leverage	—	—	—	4.13	4.05	4.01
Return on Equity (ROE)
Reported ROE	—	—	—	16.40%	18.75%	18.75%
Adjusted ROE	—	—	—	15.34%	20.21%	18.76%
Return on Assets (ROA)
Reported ROA	15.39%	7.67%	8.60%	4.26%	4.86%	4.84%
Adjusted ROA	5.20%	8.49%	10.08%	3.71%	4.99%	4.68%

An analysis of the financial ratios between 2013 and 2018 reveals significant divergences between reported figures and adjusted figures following the removal of deferred taxes, particularly in the later years of the period.

Liquidity and Solvency: The reported current ratio exhibited a general downward trend, declining from 1.11 in 2013 to 0.85 in 2018. Adjusted current ratios were consistently lower than reported values from 2013 to 2015, though they converged completely from 2016 onward. Regarding financial leverage between 2013 and 2015, adjusted ratios were consistently higher than reported ratios, indicating that the removal of deferred taxes increased the perceived leverage of the entity during that period.
Profitability Margins: A notable divergence is observed in net profit margins. While the reported net profit margin showed an upward trajectory, peaking at 9.11% in 2018, the adjusted net profit margin behaved erratically. The adjusted margin peaked at 6.01% in 2016 but fell sharply to 2.86% in 2018. This contrast suggests that reported profitability in the final year was heavily influenced by deferred tax effects rather than core operational performance.
Asset Efficiency: Total asset turnover improved over the observed period for both metrics. Reported turnover rose from 1.06 in 2013 to 1.69 in 2018. Adjusted total asset turnover remained consistently higher than the reported figure across all years, suggesting that deferred tax assets may have been inflating the total asset base and thereby depressing the reported turnover ratio.
Return on Investment: Return on Assets (ROA) showed a significant disparity by 2018; the reported ROA reached 15.39%, whereas the adjusted ROA declined to 5.20%. This aligns with the trend seen in profit margins, indicating that the reported increase in asset returns was largely driven by tax accounting adjustments. For the period between 2013 and 2015, Return on Equity (ROE) remained relatively stable in reported terms but showed higher volatility in the adjusted figures, peaking at 20.21% in 2014 before dropping to 15.34% in 2015.

The overall trend indicates that while reported metrics suggest improving profitability and asset returns toward 2018, the adjusted metrics provide a more conservative view, highlighting a decline in underlying profitability and a significant reliance on deferred tax items to bolster reported bottom-line results.

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Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
As Reported
Selected Financial Data (US$ in millions)
Current assets	21,387)	22,318)	18,468)	51,787)	50,145)	50,364)
Current liabilities	25,131)	22,412)	18,808)	42,191)	43,735)	45,521)
Liquidity Ratio
Current ratio¹	0.85	1.00	0.98	1.23	1.15	1.11
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted current assets	21,387)	22,318)	18,468)	49,545)	47,391)	46,471)
Adjusted current liabilities	25,131)	22,412)	18,808)	42,023)	43,451)	45,146)
Liquidity Ratio
Adjusted current ratio²	0.85	1.00	0.98	1.18	1.09	1.03

2018 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 21,387 ÷ 25,131 = 0.85

² Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= 21,387 ÷ 25,131 = 0.85

The liquidity position shows a distinct bifurcation between the 2013-2015 period and the 2016-2018 period. While the early years were characterized by increasing liquidity and a divergence between reported and adjusted figures, the latter years show a convergence of these metrics accompanied by a decline in the short-term solvency ratio.

Adjusted Current Ratio Trends: From 2013 to 2015, the adjusted current ratio exhibited a positive trajectory, rising from 1.03 to 1.18. During this timeframe, the adjusted ratio remained consistently lower than the reported ratio, indicating that adjustments to current assets and liabilities reduced the overall liquidity profile. Starting in 2016, the adjusted current ratio became identical to the reported ratio, eliminating any variance between the two metrics.
Liquidity Deterioration: A significant decline in liquidity is observed beginning in 2016. The adjusted current ratio dropped to 0.98 in 2016, falling below the 1.00 threshold. This downward trend continued through 2018, reaching a low of 0.85. This indicates that current liabilities began to exceed current assets, signaling a reduction in the capacity to cover short-term obligations.
Balance Sheet Structural Shifts: A substantial contraction in the scale of current accounts occurred between October 31, 2015, and October 31, 2016. Adjusted current assets decreased from US$ 49,545 million to US$ 18,468 million, while adjusted current liabilities decreased from US$ 42,023 million to US$ 18,808 million. This synchronized reduction suggests a major realignment of the company's short-term asset and liability base.

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Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
As Reported
Selected Financial Data (US$ in millions)
Net earnings	5,327)	2,526)	2,496)	4,554)	5,013)	5,113)
Net revenue	58,472)	52,056)	48,238)	103,355)	111,454)	112,298)
Profitability Ratio
Net profit margin¹	9.11%	4.85%	5.17%	4.41%	4.50%	4.55%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings	1,673)	2,765)	2,899)	3,853)	4,980)	4,703)
Net revenue	58,472)	52,056)	48,238)	103,355)	111,454)	112,298)
Profitability Ratio
Adjusted net profit margin²	2.86%	5.31%	6.01%	3.73%	4.47%	4.19%

2018 Calculations

¹ Net profit margin = 100 × Net earnings ÷ Net revenue
= 100 × 5,327 ÷ 58,472 = 9.11%

² Adjusted net profit margin = 100 × Adjusted net earnings ÷ Net revenue
= 100 × 1,673 ÷ 58,472 = 2.86%

The financial performance from 2013 to 2018 is characterized by a significant divergence between reported and adjusted profitability metrics, particularly in the final year of the period. While reported earnings and margins showed a substantial increase in 2018, adjusted figures followed a contrasting downward trajectory, suggesting the influence of non-recurring items.

Net Earnings Trends: Reported net earnings experienced a period of volatility, declining from US$ 5,113 million in 2013 to a low of US$ 2,496 million in 2016, before rebounding sharply to US$ 5,327 million by 2018. In contrast, adjusted net earnings demonstrated a general downward trend over the six-year period, peaking at US$ 4,980 million in 2014 and falling to a period low of US$ 1,673 million in 2018.
Net Profit Margin Analysis: The reported net profit margin remained relatively stable between 4.41% and 5.17% from 2013 through 2017, followed by a significant spike to 9.11% in 2018. The adjusted net profit margin exhibited greater fluctuation, increasing from 4.19% in 2013 to a peak of 6.01% in 2016, before experiencing a sharp contraction to 2.86% in 2018.
Divergence of Reported and Adjusted Metrics: A pronounced disparity is observable in 2018, where reported net earnings and margins reached their highest levels while adjusted earnings and margins reached their lowest. This inverse relationship indicates that the reported results for 2018 were heavily impacted by one-time gains or tax benefits that were excluded from the adjusted calculations to reflect core operational performance.

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Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
As Reported
Selected Financial Data (US$ in millions)
Net revenue	58,472)	52,056)	48,238)	103,355)	111,454)	112,298)
Total assets	34,622)	32,913)	29,010)	106,882)	103,206)	105,676)
Activity Ratio
Total asset turnover¹	1.69	1.58	1.66	0.97	1.08	1.06
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Net revenue	58,472)	52,056)	48,238)	103,355)	111,454)	112,298)
Adjusted total assets	32,191)	32,571)	28,756)	103,769)	99,712)	100,437)
Activity Ratio
Adjusted total asset turnover²	1.82	1.60	1.68	1.00	1.12	1.12

2018 Calculations

¹ Total asset turnover = Net revenue ÷ Total assets
= 58,472 ÷ 34,622 = 1.69

² Adjusted total asset turnover = Net revenue ÷ Adjusted total assets
= 58,472 ÷ 32,191 = 1.82

Between 2013 and 2018, a significant structural transformation occurred in the asset base, characterized by a sharp contraction in total assets and a subsequent increase in operational efficiency as measured by asset turnover.

Asset Base Trends: Total assets remained relatively stable from 2013 to 2015, with reported values fluctuating between $103,206 million and $106,882 million. A substantial decline is observed in 2016, where reported total assets fell to $29,010 million, a reduction of approximately 73% from the previous year. Following this decline, a gradual recovery in the asset base is evident, with reported assets increasing to $34,622 million by October 31, 2018.
Adjusted Total Asset Turnover Performance: The adjusted total asset turnover ratio exhibits a distinct shift in performance following the asset contraction of 2016. During the 2013-2015 period, the ratio was relatively low, moving from 1.12 to 1.00. Starting in 2016, the ratio increased sharply to 1.68 and reached a peak of 1.82 by 2018. This trend indicates a significant improvement in the capacity to generate revenue per unit of adjusted asset.
Analysis of Reported versus Adjusted Metrics: A consistent positive variance is observed when comparing adjusted metrics to reported metrics. The adjusted total asset turnover ratio remained higher than the reported ratio in every year of the period analyzed. This gap is most prominent in 2018, where the adjusted ratio of 1.82 exceeded the reported ratio of 1.69, suggesting that the adjustments exclude certain asset components that otherwise dilute the efficiency profile of the company.

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Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
As Reported
Selected Financial Data (US$ in millions)
Total assets	34,622)	32,913)	29,010)	106,882)	103,206)	105,676)
Total HP stockholders’ equity (deficit)	(639)	(3,408)	(3,889)	27,768)	26,731)	27,269)
Solvency Ratio
Financial leverage¹	—	—	—	3.85	3.86	3.88
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets	32,191)	32,571)	28,756)	103,769)	99,712)	100,437)
Adjusted total HP stockholders’ equity (deficit)	(2,970)	(2,340)	(3,027)	25,118)	24,645)	25,073)
Solvency Ratio
Adjusted financial leverage²	—	—	—	4.13	4.05	4.01

2018 Calculations

¹ Financial leverage = Total assets ÷ Total HP stockholders’ equity (deficit)
= 34,622 ÷ -639 = —

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total HP stockholders’ equity (deficit)
= 32,191 ÷ -2,970 = —

The financial position from 2013 to 2018 is characterized by a profound structural shift occurring between 2015 and 2016, marked by a substantial contraction in the asset base and a transition from positive equity to a deficit position.

Asset and Equity Trends: Reported total assets remained stable above 100 billion USD from 2013 through 2015, before experiencing a sharp decline to 29.01 billion USD in 2016. Following this drop, assets saw a moderate recovery, reaching 34.62 billion USD by 2018. Parallel to this, stockholders' equity shifted from a positive position of 27.77 billion USD in 2015 to a reported deficit of 3.89 billion USD in 2016. Although the deficit improved to 639 million USD by 2018, the equity base remained significantly diminished relative to the early period analyzed.
Adjusted vs. Reported Financial Leverage: Between 2013 and 2015, a divergence is observed between reported and adjusted financial leverage. Reported leverage remained nearly constant, shifting slightly from 3.88 to 3.85. Conversely, adjusted financial leverage showed a consistent upward trend, rising from 4.01 in 2013 to 4.13 in 2015. This indicates that when adjustments were applied to the asset and equity figures, the resulting leverage ratio was higher and increasing, suggesting a higher reliance on debt than reported figures implied.
Leverage Ratio Availability: A complete absence of leverage ratios is noted from 2016 through 2018. This coincides with the period in which both reported and adjusted stockholders' equity entered deficit territory. The lack of these ratios during this timeframe is a direct consequence of the negative equity balances, which renders standard financial leverage calculations mathematically non-representative of the company's solvency and gearing.

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Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
As Reported
Selected Financial Data (US$ in millions)
Net earnings	5,327)	2,526)	2,496)	4,554)	5,013)	5,113)
Total HP stockholders’ equity (deficit)	(639)	(3,408)	(3,889)	27,768)	26,731)	27,269)
Profitability Ratio
ROE¹	—	—	—	16.40%	18.75%	18.75%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings	1,673)	2,765)	2,899)	3,853)	4,980)	4,703)
Adjusted total HP stockholders’ equity (deficit)	(2,970)	(2,340)	(3,027)	25,118)	24,645)	25,073)
Profitability Ratio
Adjusted ROE²	—	—	—	15.34%	20.21%	18.76%

2018 Calculations

¹ ROE = 100 × Net earnings ÷ Total HP stockholders’ equity (deficit)
= 100 × 5,327 ÷ -639 = —

² Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted total HP stockholders’ equity (deficit)
= 100 × 1,673 ÷ -2,970 = —

A significant divergence is observed between reported and adjusted financial metrics between 2013 and 2018, characterized by a fundamental shift in the company's capital structure and a growing gap in net earnings reporting.

Net Earnings Trends: Reported net earnings remained relatively stable between 2013 and 2015, experienced a sharp decline in 2016 and 2017, and rebounded to a peak of 5,327 million US dollars in 2018. In contrast, adjusted net earnings followed a consistent downward trajectory over the same period, falling from 4,703 million US dollars in 2013 to 1,673 million US dollars in 2018. The disparity between reported and adjusted figures reached its maximum in 2018, suggesting that non-recurring items or tax adjustments significantly inflated the reported bottom line relative to adjusted operational performance.
Stockholders' Equity Transformation: A critical structural change occurred in the equity position starting in 2016. From 2013 to 2015, the company maintained a strong positive equity position, with reported stockholders' equity averaging approximately 27 billion US dollars. However, in 2016, this transitioned into a deficit of 3,889 million US dollars. While the reported deficit narrowed to 639 million US dollars by 2018, the adjusted equity remained deeply negative at 2,970 million US dollars, indicating a period of aggressive capital redistribution or significant liability increases.
Adjusted Return on Equity (ROE) Analysis: During the period of positive equity (2013–2015), adjusted ROE demonstrated volatility, peaking at 20.21% in 2014 before declining to 15.34% in 2015. The absence of ROE calculations for the 2016 through 2018 period is consistent with the shift to negative stockholders' equity, as the ratio becomes mathematically non-meaningful when the equity base is a deficit.

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Based on: 10-K (reporting date: 2018-10-31), 10-K (reporting date: 2017-10-31), 10-K (reporting date: 2016-10-31), 10-K (reporting date: 2015-10-31), 10-K (reporting date: 2014-10-31), 10-K (reporting date: 2013-10-31).

	Oct 31, 2018	Oct 31, 2017	Oct 31, 2016	Oct 31, 2015	Oct 31, 2014	Oct 31, 2013
As Reported
Selected Financial Data (US$ in millions)
Net earnings	5,327)	2,526)	2,496)	4,554)	5,013)	5,113)
Total assets	34,622)	32,913)	29,010)	106,882)	103,206)	105,676)
Profitability Ratio
ROA¹	15.39%	7.67%	8.60%	4.26%	4.86%	4.84%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings	1,673)	2,765)	2,899)	3,853)	4,980)	4,703)
Adjusted total assets	32,191)	32,571)	28,756)	103,769)	99,712)	100,437)
Profitability Ratio
Adjusted ROA²	5.20%	8.49%	10.08%	3.71%	4.99%	4.68%

2018 Calculations

¹ ROA = 100 × Net earnings ÷ Total assets
= 100 × 5,327 ÷ 34,622 = 15.39%

² Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × 1,673 ÷ 32,191 = 5.20%

The financial performance from 2013 to 2018 is characterized by a significant structural shift in the asset base and a widening divergence between reported and adjusted profitability metrics. A substantial contraction in total assets occurred between 2015 and 2016, which fundamentally altered the return on assets calculations for the remainder of the period.

Net Earnings Trends: Reported net earnings exhibited volatility, declining from 5,113 million US$ in 2013 to a low of 2,496 million US$ in 2016, before rebounding sharply to 5,327 million US$ in 2018. In contrast, adjusted net earnings showed a more consistent downward trajectory, particularly in the final year, where they fell to 1,673 million US$. The significant gap between reported and adjusted earnings in 2018 suggests the impact of non-recurring gains or tax adjustments that inflated the reported figure relative to core operational performance.
Asset Base Evolution: A dramatic reduction in the asset base is observed between October 31, 2015, and October 31, 2016, with reported total assets falling from 106,882 million US$ to 29,010 million US$. Adjusted total assets followed a nearly identical pattern, decreasing from 103,769 million US$ to 28,756 million US$ in the same period. Following this contraction, assets remained relatively stable, fluctuating between 28 billion and 34 billion US$ through 2018.
Return on Assets (ROA) Analysis: Reported ROA demonstrated a strong upward trend, rising from 4.84% in 2013 to a peak of 15.39% in 2018. This increase is primarily attributable to the massive reduction in the asset denominator rather than a proportional increase in net earnings. Adjusted ROA presents a different narrative; while it peaked at 10.08% in 2016 following the asset base reduction, it subsequently declined to 5.20% by 2018. The divergence between reported and adjusted ROA in 2018 highlights that the reported efficiency gain was driven by non-operational factors, while the adjusted metric indicates a decline in the efficiency of core asset utilization.

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