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Microsoft Excel LibreOffice Calc

Illinois Tool Works Inc. (ITW)


Analysis of Income Taxes

Difficulty: Advanced


Income Tax Accounting Policy

ITW utilizes the asset and liability method of accounting for income taxes. Deferred income taxes are determined based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities given the provisions of the enacted tax laws. Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset will not be realized.

Source: 10-K (filing date: 2019-02-15).


Income Tax Expense (Benefit)

Illinois Tool Works Inc., income tax expense (benefit), continuing operations

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
U.S. federal income taxes hidden hidden hidden hidden hidden
Foreign income taxes hidden hidden hidden hidden hidden
State income taxes hidden hidden hidden hidden hidden
Current hidden hidden hidden hidden hidden
U.S. federal income taxes hidden hidden hidden hidden hidden
Foreign income taxes hidden hidden hidden hidden hidden
State income taxes hidden hidden hidden hidden hidden
Deferred hidden hidden hidden hidden hidden
Foreign income taxes hidden hidden hidden hidden hidden
Benefit of net operating loss carryforwards hidden hidden hidden hidden hidden
Provision for income taxes hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Item Description The company
Current Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Illinois Tool Works Inc.’s current increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Illinois Tool Works Inc.’s deferred increased from 2016 to 2017 but then slightly declined from 2017 to 2018.
Provision for income taxes Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Illinois Tool Works Inc.’s provision for income taxes increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Effective Income Tax Rate (EITR)

Illinois Tool Works Inc., 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 hidden hidden hidden hidden hidden
U.S. tax effect of foreign earnings hidden hidden hidden hidden hidden
State income taxes, net of U.S. federal tax benefit hidden hidden hidden hidden hidden
Differences between U.S. federal statutory and foreign tax rates hidden hidden hidden hidden hidden
Nontaxable foreign interest income hidden hidden hidden hidden hidden
Tax effect of foreign dividends hidden hidden hidden hidden hidden
Tax relief for U.S. manufacturers hidden hidden hidden hidden hidden
Excess tax benefits from stock-based compensation hidden hidden hidden hidden hidden
Other, net hidden hidden hidden hidden hidden
Effective tax rate, before tax effect of U.S. federal tax law change hidden hidden hidden hidden hidden
Tax effect of U.S. federal tax law change hidden hidden hidden hidden hidden
Effective tax rate hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Item Description The company
Effective tax rate, before tax effect of U.S. federal tax law change Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Illinois Tool Works Inc.’s effective tax rate, before tax effect of U.S. federal tax law change declined from 2016 to 2017 and from 2017 to 2018.

Components of Deferred Tax Assets and Liabilities

Illinois Tool Works Inc., components of deferred tax assets and liabilities

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Goodwill and intangible assets hidden hidden hidden hidden hidden
Inventory reserves, capitalized tax cost and LIFO inventory hidden hidden hidden hidden hidden
Investments hidden hidden hidden hidden hidden
Plant and equipment hidden hidden hidden hidden hidden
Accrued expenses and reserves hidden hidden hidden hidden hidden
Employee benefit accruals hidden hidden hidden hidden hidden
Foreign tax credit carryforwards hidden hidden hidden hidden hidden
Net operating loss carryforwards hidden hidden hidden hidden hidden
Capital loss carryforwards hidden hidden hidden hidden hidden
Allowances for uncollectible accounts hidden hidden hidden hidden hidden
Pension liabilities hidden hidden hidden hidden hidden
Deferred intercompany deductions hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Gross deferred income tax assets hidden hidden hidden hidden hidden
Valuation allowances hidden hidden hidden hidden hidden
Deferred income tax assets hidden hidden hidden hidden hidden
Goodwill and intangible assets hidden hidden hidden hidden hidden
Inventory reserves, capitalized tax cost and LIFO inventory hidden hidden hidden hidden hidden
Investments hidden hidden hidden hidden hidden
Plant and equipment hidden hidden hidden hidden hidden
Pension liabilities hidden hidden hidden hidden hidden
Unrealized (gain) loss on foreign debt instruments hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Deferred income tax liabilities hidden hidden hidden hidden hidden
Net deferred income tax assets (liabilities) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Item Description The company
Gross deferred income tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Illinois Tool Works Inc.’s gross deferred income tax assets declined from 2016 to 2017 and from 2017 to 2018.
Deferred income tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Illinois Tool Works Inc.’s deferred income tax assets declined from 2016 to 2017 and from 2017 to 2018.
Net deferred income 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. Illinois Tool Works Inc.’s net deferred income tax assets (liabilities) increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Deferred Tax Assets and Liabilities, Classification

Illinois Tool Works Inc., deferred tax assets and liabilities, classification

US$ in millions

Microsoft Excel LibreOffice Calc

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Item Description The company
Noncurrent deferred income tax 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. Illinois Tool Works Inc.’s noncurrent deferred income tax assets increased from 2016 to 2017 and from 2017 to 2018.
Noncurrent deferred income tax liabilities Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. Illinois Tool Works Inc.’s noncurrent deferred income tax liabilities increased from 2016 to 2017 and from 2017 to 2018.

Analyst Adjustments: Removal of Deferred Taxes

Illinois Tool Works Inc., adjustments to financial data

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Current Assets
Current assets (as reported) hidden hidden hidden hidden hidden
Less: Current deferred tax assets, net hidden hidden hidden hidden hidden
Current assets (adjusted) hidden hidden hidden hidden hidden
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden
Less: Current deferred tax assets, net hidden hidden hidden hidden hidden
Less: Noncurrent deferred tax assets, net hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden
Adjustment to Current Liabilities
Current liabilities (as reported) hidden hidden hidden hidden hidden
Less: Current deferred tax liabilities, net hidden hidden hidden hidden hidden
Current liabilities (adjusted) hidden hidden hidden hidden hidden
Adjustment to Total Liabilities
Total liabilities (as reported) hidden hidden hidden hidden hidden
Less: Current deferred tax liabilities, net hidden hidden hidden hidden hidden
Less: Noncurrent deferred tax liabilities, net hidden hidden hidden hidden hidden
Total liabilities (adjusted) hidden hidden hidden hidden hidden
Adjustment to Stockholders’ Equity Attributable To ITW
Stockholders’ equity attributable to ITW (as reported) hidden hidden hidden hidden hidden
Less: Net deferred tax assets (liabilities) hidden hidden hidden hidden hidden
Stockholders’ equity attributable to ITW (adjusted) hidden hidden hidden hidden hidden
Adjustment to Net Income
Net income (as reported) hidden hidden hidden hidden hidden
Add: Deferred income tax expense (benefit) hidden hidden hidden hidden hidden
Net income (adjusted) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).


Illinois Tool Works Inc., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Deferred Taxes (Summary)

Illinois Tool Works Inc., 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 hidden hidden hidden hidden hidden
Adjusted current ratio hidden hidden hidden hidden hidden
Net Profit Margin
Reported net profit margin hidden hidden hidden hidden hidden
Adjusted net profit margin hidden hidden hidden hidden hidden
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Illinois Tool Works Inc.’s adjusted current ratio improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Illinois Tool Works Inc.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Illinois Tool Works Inc.’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.
Illinois Tool Works Inc.’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. Illinois Tool Works Inc.’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. Illinois Tool Works Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Illinois Tool Works Inc., 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 (US$ in millions)
Current assets hidden hidden hidden hidden hidden
Current liabilities hidden hidden hidden hidden hidden
Ratio
Current ratio1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted current assets hidden hidden hidden hidden hidden
Adjusted current liabilities hidden hidden hidden hidden hidden
Ratio
Adjusted current ratio2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

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

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

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Illinois Tool Works Inc.’s adjusted current ratio improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

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 (US$ in millions)
Net income hidden hidden hidden hidden hidden
Operating revenue hidden hidden hidden hidden hidden
Ratio
Net profit margin1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income hidden hidden hidden hidden hidden
Operating revenue hidden hidden hidden hidden hidden
Ratio
Adjusted net profit margin2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Net profit margin = 100 × Net income ÷ Operating revenue
= 100 × hidden ÷ hidden = hidden

2 Adjusted net profit margin = 100 × Adjusted net income ÷ Operating revenue
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Illinois Tool Works Inc.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 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 (US$ in millions)
Operating revenue hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Operating revenue hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Total asset turnover = Operating revenue ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Operating revenue ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Illinois Tool Works Inc.’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 (US$ in millions)
Total assets hidden hidden hidden hidden hidden
Stockholders’ equity attributable to ITW hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets hidden hidden hidden hidden hidden
Adjusted stockholders’ equity attributable to ITW hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity attributable to ITW
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity attributable to ITW
= hidden ÷ hidden = hidden

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.
Illinois Tool Works Inc.’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 (US$ in millions)
Net income hidden hidden hidden hidden hidden
Stockholders’ equity attributable to ITW hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income hidden hidden hidden hidden hidden
Adjusted stockholders’ equity attributable to ITW hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 ROE = 100 × Net income ÷ Stockholders’ equity attributable to ITW
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted stockholders’ equity attributable to ITW
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Illinois Tool Works Inc.’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 (US$ in millions)
Net income hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

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