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Home Depot Inc. (HD)
Analysis of Income Taxes
Difficulty: Advanced
- Income Tax Accounting Policy
- Income Tax Expense (Benefit)
- Effective Income Tax Rate (EITR)
- Components of Deferred Tax Assets and Liabilities
- Deferred Tax Assets and Liabilities, Classification
- Analyst Adjustments: Removal of Deferred Taxes
- Adjusted Ratios: Removal of Deferred Taxes (Summary)
- Adjusted Current Ratio
- Adjusted Net Profit Margin
- Adjusted Total Asset Turnover
- Adjusted Financial Leverage
- Adjusted Return on Equity (ROE)
- Adjusted Return on Assets (ROA)
Income Tax Accounting Policy
Income taxes are accounted for under the asset and liability method. Home Depot provides for federal, state, and foreign income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date.
Home Depot recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Home Depot files a consolidated U.S. federal income tax return which includes certain eligible subsidiaries. Non-U.S. subsidiaries and certain U.S. subsidiaries, which are consolidated for financial reporting purposes, are not eligible to be included in Home Depot’s consolidated U.S. federal income tax return. Separate provisions for income taxes have been determined for these entities. For unremitted earnings of the non-U.S. subsidiaries, Home Depot is required to make an assertion regarding reinvestment or repatriation for tax purposes. For any earnings that Home Depot does not make a permanent reinvestment assertion, Home Depot recognizes a provision for deferred income taxes. For earnings where Home Depot has made a permanent reinvestment assertion, no provision is recognized.
Source: 10-K (filing date: 2019-03-28).
Income Tax Expense (Benefit)
Home Depot Inc., income tax expense (benefit), continuing operations
USD $ in millions
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Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
| Item | Description | The company |
|---|---|---|
| Current | Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. | Home Depot Inc.’s current increased from 2017 to 2018 but then declined significantly from 2018 to 2019. |
| Deferred | Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. | Home Depot Inc.’s deferred increased from 2017 to 2018 but then slightly declined from 2018 to 2019. |
| Provision for income taxes | Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. | Home Depot Inc.’s provision for income taxes increased from 2017 to 2018 but then declined significantly from 2018 to 2019. |
Effective Income Tax Rate (EITR)
Home Depot Inc., effective income tax rate (EITR) reconciliation
| Feb 3, 2019 | Jan 28, 2018 | Jan 29, 2017 | Jan 31, 2016 | Feb 1, 2015 | Feb 2, 2014 | ||
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| Federal statutory income tax rate | |
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Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
| Item | Description | The company |
|---|---|---|
| Federal, state and foreign effective tax rate | Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. | Home Depot Inc.’s federal, state and foreign effective tax rate increased from 2017 to 2018 but then declined significantly from 2018 to 2019. |
Components of Deferred Tax Assets and Liabilities
Home Depot Inc., components of deferred tax assets and liabilities
USD $ in millions
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
| Item | Description | The company |
|---|---|---|
| Deferred tax assets | Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. | Home Depot Inc.’s deferred tax assets declined from 2017 to 2018 and from 2018 to 2019. |
| Deferred tax assets after valuation allowance | Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. | Home Depot Inc.’s deferred tax assets after valuation allowance declined from 2017 to 2018 and 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. | Home Depot Inc.’s net deferred tax assets (liabilities) declined from 2017 to 2018 and from 2018 to 2019. |
Deferred Tax Assets and Liabilities, Classification
Home Depot Inc., deferred tax assets and liabilities, classification
USD $ in millions
| Feb 3, 2019 | Jan 28, 2018 | Jan 29, 2017 | Jan 31, 2016 | Feb 1, 2015 | Feb 2, 2014 | ||
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| Current deferred tax assets (included in Other current assets) | |
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Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
| Item | Description | The company |
|---|---|---|
| Noncurrent 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. | Home Depot Inc.’s noncurrent deferred tax assets (included in Other assets) increased from 2017 to 2018 and from 2018 to 2019. |
| Noncurrent deferred tax liabilities | Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. | Home Depot Inc.’s noncurrent deferred tax liabilities increased from 2017 to 2018 and from 2018 to 2019. |
Analyst Adjustments: Removal of Deferred Taxes
Home Depot Inc., adjustments to financial data
USD $ in millions
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
Home Depot Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Home Depot Inc., adjusted ratios
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
| Ratio | Description | The company |
|---|---|---|
| Adjusted current ratio | A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. | Home Depot Inc.’s adjusted current ratio deteriorated from 2017 to 2018 and from 2018 to 2019. |
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Home Depot Inc.’s adjusted net profit margin improved from 2017 to 2018 and from 2018 to 2019. |
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Home Depot Inc.’s adjusted total asset turnover 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. |
Home Depot Inc.’s adjusted financial leverage increased from 2017 to 2018 but then declined significantly from 2018 to 2019. |
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. | Home Depot Inc.’s adjusted ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Home Depot Inc.’s adjusted ROA improved from 2017 to 2018 and from 2018 to 2019. |
Home Depot Inc., Ratios: Reported vs. Adjusted
Adjusted Current Ratio
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
2019 Calculations
1 Current ratio = Current assets ÷ Current liabilities
= ÷ =
2 Adjusted current ratio = Adjusted 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. | Home Depot Inc.’s adjusted current ratio deteriorated from 2017 to 2018 and from 2018 to 2019. |
Adjusted Net Profit Margin
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
2019 Calculations
1 Net profit margin = 100 × Net earnings ÷ Net sales
= 100 × ÷ =
2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Net sales
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted net profit margin | An indicator of profitability, calculated as adjusted net income divided by total revenue. | Home Depot Inc.’s adjusted net profit margin improved from 2017 to 2018 and from 2018 to 2019. |
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
2019 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. | Home Depot Inc.’s adjusted total asset turnover improved from 2017 to 2018 and from 2018 to 2019. |
Adjusted Financial Leverage
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
2019 Calculations
1 Financial leverage = Total assets ÷ Stockholders’ equity (deficit)
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity (deficit)
= ÷ =
| 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. |
Home Depot Inc.’s adjusted financial leverage increased from 2017 to 2018 but then declined significantly from 2018 to 2019. |
Adjusted Return on Equity (ROE)
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
2019 Calculations
1 ROE = 100 × Net earnings ÷ Stockholders’ equity (deficit)
= 100 × ÷ =
2 Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted stockholders’ equity (deficit)
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. | Home Depot Inc.’s adjusted ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-23), 10-K (filing date: 2016-03-24), 10-K (filing date: 2015-03-26), 10-K (filing date: 2014-03-27).
2019 Calculations
1 ROA = 100 × Net earnings ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as adjusted net income divided by adjusted total assets. | Home Depot Inc.’s adjusted ROA improved from 2017 to 2018 and from 2018 to 2019. |