Stock Analysis on Net
Stock Analysis on Net
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Illinois Tool Works Inc. (NYSE:ITW)

Analysis of Income Taxes

Advanced level

Income Tax Expense (Benefit)

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

US$ in millions

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12 months ended: Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
U.S. federal income taxes 356  373  1,117  756  503 
Foreign income taxes 302  358  296  290  310 
State income taxes 77  66  106  90  66 
Current 735  797  1,519  1,136  879 
U.S. federal income taxes (26) (15) (10) (224) 8 
Foreign income taxes 53  49  102  (5) (11)
State income taxes 5  —  (28) (34) (8)
Deferred 32  34  64  (263) (11)
Foreign income taxes —  —  —  —  (48)
Benefit of net operating loss carryforwards —  —  —  —  (48)
Provision for income taxes 767  831  1,583  873  820 

Based on: 10-K (filing date: 2020-02-14), 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).

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 decreased from 2017 to 2018 and from 2018 to 2019.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Illinois Tool Works Inc.’s deferred decreased from 2017 to 2018 and 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. Illinois Tool Works Inc.’s provision for income taxes decreased from 2017 to 2018 and from 2018 to 2019.

Effective Income Tax Rate (EITR)

Illinois Tool Works Inc., effective income tax rate (EITR) reconciliation

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
U.S. federal statutory tax rate 21.00% 21.00% 35.00% 35.00% 35.00%
U.S. tax effect of foreign earnings 1.10% 1.50% 0.50% 0.70% 0.00%
State income taxes, net of U.S. federal tax benefit 1.70% 1.60% 1.20% 1.30% 1.40%
Differences between U.S. federal statutory and foreign tax rates 2.00% 2.10% -3.50% -3.60% -3.10%
Nontaxable foreign interest income -1.40% -1.70% -1.70% -2.10% -3.30%
Tax effect of foreign dividends 0.20% 1.00% 0.40% 0.80% 2.80%
Tax relief for U.S. manufacturers 0.00% 0.00% -1.40% -1.40% -1.60%
Excess tax benefits from stock-based compensation -0.90% -0.30% -1.50% 0.00% 0.00%
Other, net -0.40% -0.60% -0.70% -0.70% -1.10%
Effective tax rate, before tax effect of U.S. federal tax law change 23.30% 24.60% 28.30% 30.00% 30.10%
Tax effect of U.S. federal tax law change 0.00% -0.10% 20.10% 0.00% 0.00%
Effective tax rate 23.30% 24.50% 48.40% 30.00% 30.10%

Based on: 10-K (filing date: 2020-02-14), 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).

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 decreased from 2017 to 2018 and from 2018 to 2019.

Components of Deferred Tax Assets and Liabilities

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

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Goodwill and intangible assets 202  194  195  240  282 
Inventory reserves, capitalized tax cost and LIFO inventory 29  30  31  40  42 
Investments 16  19  15  23  25 
Plant and equipment 17  17  18  23  28 
Accrued expenses and reserves 42  36  45  76  79 
Employee benefit accruals 176  186  177  306  314 
Foreign tax credit carryforwards 7  8  13  6  216 
Net operating loss carryforwards 419  451  507  610  643 
Capital loss carryforwards 80  89  98  42  39 
Allowances for uncollectible accounts 9  10  9  13  13 
Pension liabilities —  —  —  25  13 
Deferred intercompany deductions —  —  405  430  — 
Operating leases 45  —  —  —  — 
Other 32  32  99  97  109 
Gross deferred income tax assets 1,074  1,072  1,612  1,931  1,803 
Valuation allowances (408) (418) (459) (454) (467)
Deferred income tax assets 666  654  1,153  1,477  1,336 
Goodwill and intangible assets (453) (484) (506) (716) (734)
Inventory reserves, capitalized tax cost and LIFO inventory (3) (3) (3) (5) (5)
Investments (158) (171) (180) (206) (298)
Plant and equipment (74) (72) (64) (79) (84)
Pension liabilities (15) (19) (25) —  — 
Unrealized (gain) loss on foreign debt instruments (57) (45) (19) (140) (115)
Operating leases (45) —  —  —  — 
Other (13) (13) (15) (16) (10)
Deferred income tax liabilities (818) (807) (812) (1,162) (1,246)
Net deferred income tax assets (liabilities) (152) (153) 341  315  90 

Based on: 10-K (filing date: 2020-02-14), 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).

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 decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.
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 decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.
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) decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.

Deferred Tax Assets and Liabilities, Classification

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

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Deferred income tax assets 516  554  505  449  346 
Deferred income tax liabilities 668  707  164  134  256 

Based on: 10-K (filing date: 2020-02-14), 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).

Item Description The company
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 deferred income tax assets increased from 2017 to 2018 but then slightly decreased from 2018 to 2019 not reaching 2017 level.
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 deferred income tax liabilities increased from 2017 to 2018 but then slightly decreased from 2018 to 2019.

Adjustments to Financial Statements: Removal of Deferred Taxes

Illinois Tool Works Inc., adjustments to financial statements

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Adjustment to Total Assets
Total assets (as reported) 15,068  14,870  16,780  15,201  15,729 
Less: Noncurrent deferred tax assets, net 516  554  505  449  346 
Total assets (adjusted) 14,552  14,316  16,275  14,752  15,383 
Adjustment to Total Liabilities
Total liabilities (as reported) 12,038  11,612  12,191  10,942  10,501 
Less: Noncurrent deferred tax liabilities, net 668  707  164  134  256 
Total liabilities (adjusted) 11,370  10,905  12,027  10,808  10,245 
Adjustment to Stockholders’ Equity Attributable To ITW
Stockholders’ equity attributable to ITW (as reported) 3,026  3,254  4,585  4,254  5,224 
Less: Net deferred tax assets (liabilities) (152) (153) 341  315  90 
Stockholders’ equity attributable to ITW (adjusted) 3,178  3,407  4,244  3,939  5,134 
Adjustment to Net Income
Net income (as reported) 2,521  2,563  1,687  2,035  1,899 
Add: Deferred income tax expense (benefit) 32  34  64  (263) (11)
Net income (adjusted) 2,553  2,597  1,751  1,772  1,888 

Based on: 10-K (filing date: 2020-02-14), 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).

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

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Illinois Tool Works Inc., adjusted financial ratios

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Net Profit Margin
Reported net profit margin 17.87% 17.36% 11.79% 14.96% 14.17%
Adjusted net profit margin 18.09% 17.59% 12.23% 13.03% 14.08%
Total Asset Turnover
Reported total asset turnover 0.94 0.99 0.85 0.89 0.85
Adjusted total asset turnover 0.97 1.03 0.88 0.92 0.87
Financial Leverage
Reported financial leverage 4.98 4.57 3.66 3.57 3.01
Adjusted financial leverage 4.58 4.20 3.83 3.75 3.00
Return on Equity (ROE)
Reported ROE 83.31% 78.76% 36.79% 47.84% 36.35%
Adjusted ROE 80.33% 76.23% 41.26% 44.99% 36.77%
Return on Assets (ROA)
Reported ROA 16.73% 17.24% 10.05% 13.39% 12.07%
Adjusted ROA 17.54% 18.14% 10.76% 12.01% 12.27%

Based on: 10-K (filing date: 2020-02-14), 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).

Financial 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 ratio 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. Illinois Tool Works Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then slightly deteriorated 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.		 Illinois Tool Works Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Illinois Tool Works 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. Illinois Tool Works Inc.’s adjusted ROA improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

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

Adjusted Net Profit Margin

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income 2,521  2,563  1,687  2,035  1,899 
Operating revenue 14,109  14,768  14,314  13,599  13,405 
Profitability Ratio
Net profit margin1 17.87% 17.36% 11.79% 14.96% 14.17%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income 2,553  2,597  1,751  1,772  1,888 
Operating revenue 14,109  14,768  14,314  13,599  13,405 
Profitability Ratio
Adjusted net profit margin2 18.09% 17.59% 12.23% 13.03% 14.08%

Based on: 10-K (filing date: 2020-02-14), 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).

2019 Calculations

1 Net profit margin = 100 × Net income ÷ Operating revenue
= 100 × 2,521 ÷ 14,109 = 17.87%

2 Adjusted net profit margin = 100 × Adjusted net income ÷ Operating revenue
= 100 × 2,553 ÷ 14,109 = 18.09%

Profitability 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 ratio improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Total Asset Turnover

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Operating revenue 14,109  14,768  14,314  13,599  13,405 
Total assets 15,068  14,870  16,780  15,201  15,729 
Activity Ratio
Total asset turnover1 0.94 0.99 0.85 0.89 0.85
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Operating revenue 14,109  14,768  14,314  13,599  13,405 
Adjusted total assets 14,552  14,316  16,275  14,752  15,383 
Activity Ratio
Adjusted total asset turnover2 0.97 1.03 0.88 0.92 0.87

Based on: 10-K (filing date: 2020-02-14), 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).

2019 Calculations

1 Total asset turnover = Operating revenue ÷ Total assets
= 14,109 ÷ 15,068 = 0.94

2 Adjusted total asset turnover = Operating revenue ÷ Adjusted total assets
= 14,109 ÷ 14,552 = 0.97

Activity 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 ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Adjusted Financial Leverage

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Total assets 15,068  14,870  16,780  15,201  15,729 
Stockholders’ equity attributable to ITW 3,026  3,254  4,585  4,254  5,224 
Solvency Ratio
Financial leverage1 4.98 4.57 3.66 3.57 3.01
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets 14,552  14,316  16,275  14,752  15,383 
Adjusted stockholders’ equity attributable to ITW 3,178  3,407  4,244  3,939  5,134 
Solvency Ratio
Adjusted financial leverage2 4.58 4.20 3.83 3.75 3.00

Based on: 10-K (filing date: 2020-02-14), 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).

2019 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity attributable to ITW
= 15,068 ÷ 3,026 = 4.98

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity attributable to ITW
= 14,552 ÷ 3,178 = 4.58

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.		 Illinois Tool Works Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income 2,521  2,563  1,687  2,035  1,899 
Stockholders’ equity attributable to ITW 3,026  3,254  4,585  4,254  5,224 
Profitability Ratio
ROE1 83.31% 78.76% 36.79% 47.84% 36.35%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income 2,553  2,597  1,751  1,772  1,888 
Adjusted stockholders’ equity attributable to ITW 3,178  3,407  4,244  3,939  5,134 
Profitability Ratio
Adjusted ROE2 80.33% 76.23% 41.26% 44.99% 36.77%

Based on: 10-K (filing date: 2020-02-14), 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).

2019 Calculations

1 ROE = 100 × Net income ÷ Stockholders’ equity attributable to ITW
= 100 × 2,521 ÷ 3,026 = 83.31%

2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted stockholders’ equity attributable to ITW
= 100 × 2,553 ÷ 3,178 = 80.33%

Profitability 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 improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income 2,521  2,563  1,687  2,035  1,899 
Total assets 15,068  14,870  16,780  15,201  15,729 
Profitability Ratio
ROA1 16.73% 17.24% 10.05% 13.39% 12.07%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income 2,553  2,597  1,751  1,772  1,888 
Adjusted total assets 14,552  14,316  16,275  14,752  15,383 
Profitability Ratio
Adjusted ROA2 17.54% 18.14% 10.76% 12.01% 12.27%

Based on: 10-K (filing date: 2020-02-14), 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).

2019 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × 2,521 ÷ 15,068 = 16.73%

2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × 2,553 ÷ 14,552 = 17.54%

Profitability 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 improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.