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Microsoft Excel LibreOffice Calc


Analysis of Income Taxes

Difficulty: Advanced


Income Tax Accounting Policy

Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the tax effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. These deferred taxes are measured by applying currently enacted tax laws. Valuation allowances are recognized to reduce deferred tax assets to the amount that will more likely than not be realized. In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. When IBM changes its determination as to the amount of deferred tax assets that can be realized, the valuation allowance is adjusted with a corresponding impact to income tax expense in the period in which such determination is made.

IBM recognizes tax liabilities when, despite IBM’s belief that its tax return positions are supportable, IBM believes that certain positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. The current portion of tax liabilities is included in taxes and the noncurrent portion of tax liabilities is included in other liabilities in the Consolidated Statement of Financial Position. To the extent that new information becomes available which causes IBM to change its judgment regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense.

Source: 10-K (filing date: 2018-02-27).


Income Tax Expense (Benefit)

International Business Machines Corp., income tax expense (benefit), continuing operations

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
U.S. federal hidden hidden hidden hidden hidden
U.S. state and local hidden hidden hidden hidden hidden
Non-U.S. hidden hidden hidden hidden hidden
Current hidden hidden hidden hidden hidden
U.S. federal hidden hidden hidden hidden hidden
U.S. state and local hidden hidden hidden hidden hidden
Non-U.S. hidden hidden hidden hidden hidden
Deferred hidden hidden hidden hidden hidden
Provision for income taxes hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

Item Description The company
Current Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. International Business Machines Corp.’s current declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. International Business Machines Corp.’s deferred declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Provision for income taxes Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. International Business Machines Corp.’s provision for income taxes declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

Effective Income Tax Rate (EITR)

International Business Machines Corp., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Statutory tax rate hidden hidden hidden hidden hidden
U.S. Tax Cuts and Jobs Act hidden hidden hidden hidden hidden
Foreign tax differential hidden hidden hidden hidden hidden
Intra-entity transfers hidden hidden hidden hidden hidden
Domestic incentives hidden hidden hidden hidden hidden
State and local hidden hidden hidden hidden hidden
Japan resolution hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Effective tax rate hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

Item Description The company
Effective tax rate Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. International Business Machines Corp.’s effective tax rate declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

Components of Deferred Tax Assets and Liabilities

International Business Machines Corp., components of deferred tax assets and liabilities

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Retirement benefits hidden hidden hidden hidden hidden
Share-based and other compensation hidden hidden hidden hidden hidden
Domestic tax loss/credit carryforwards hidden hidden hidden hidden hidden
Deferred income hidden hidden hidden hidden hidden
Foreign tax loss/credit carryforwards hidden hidden hidden hidden hidden
Bad debt, inventory and warranty reserves hidden hidden hidden hidden hidden
Depreciation hidden hidden hidden hidden hidden
Accruals hidden hidden hidden hidden hidden
Intangible assets hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Gross deferred tax assets hidden hidden hidden hidden hidden
Valuation allowance hidden hidden hidden hidden hidden
Net deferred tax assets hidden hidden hidden hidden hidden
Depreciation hidden hidden hidden hidden hidden
Retirement benefits hidden hidden hidden hidden hidden
Goodwill and intangible assets hidden hidden hidden hidden hidden
Leases hidden hidden hidden hidden hidden
Software development costs hidden hidden hidden hidden hidden
Deferred transition costs hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Gross deferred tax liabilities hidden hidden hidden hidden hidden
Net deferred tax assets (liabilities) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

Item Description The company
Gross deferred tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. International Business Machines Corp.’s gross deferred tax assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017.
Net deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. International Business Machines Corp.’s net deferred tax assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017.
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. International Business Machines Corp.’s net deferred tax assets (liabilities) increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

Deferred Tax Assets and Liabilities, Classification

International Business Machines Corp., deferred tax assets and liabilities, classification

USD $ in millions

Microsoft Excel LibreOffice Calc

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

Item Description The company
Noncurrent deferred 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. International Business Machines Corp.’s noncurrent deferred tax assets increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.
Noncurrent deferred tax liabilities Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. International Business Machines Corp.’s noncurrent deferred tax liabilities increased from 2015 to 2016 and from 2016 to 2017.

Analyst Adjustments: Removal of Deferred Taxes

International Business Machines Corp., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
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 Total IBM Stockholders’ Equity
Total IBM stockholders’ equity (as reported) hidden hidden hidden hidden hidden
Less: Net deferred tax assets (liabilities) hidden hidden hidden hidden hidden
Total IBM stockholders’ equity (adjusted) hidden hidden hidden hidden hidden
Adjustment to Net Income Attributable To IBM
Net income attributable to IBM (as reported) hidden hidden hidden hidden hidden
Add: Deferred income tax expense (benefit) hidden hidden hidden hidden hidden
Net income attributable to IBM (adjusted) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).


International Business Machines Corp., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Deferred Taxes (Summary)

International Business Machines Corp., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
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: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. International Business Machines Corp.’s adjusted current ratio deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. International Business Machines Corp.’s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. International Business Machines Corp.’s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017.
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.
International Business Machines Corp.’s adjusted financial leverage declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. International Business Machines Corp.’s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. International Business Machines Corp.’s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.

International Business Machines Corp., Ratios: Reported vs. Adjusted


Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ 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 (USD $ 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: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

2017 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. International Business Machines Corp.’s adjusted current ratio deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to IBM hidden hidden hidden hidden hidden
Revenue hidden hidden hidden hidden hidden
Ratio
Net profit margin1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to IBM hidden hidden hidden hidden hidden
Revenue hidden hidden hidden hidden hidden
Ratio
Adjusted net profit margin2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

2017 Calculations

1 Net profit margin = 100 × Net income attributable to IBM ÷ Revenue
= 100 × hidden ÷ hidden = hidden

2 Adjusted net profit margin = 100 × Adjusted net income attributable to IBM ÷ 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. International Business Machines Corp.’s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
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 (USD $ in millions)
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: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

2017 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = 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. International Business Machines Corp.’s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Total assets hidden hidden hidden hidden hidden
Total IBM stockholders’ equity hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted total assets hidden hidden hidden hidden hidden
Adjusted total IBM stockholders’ equity hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

2017 Calculations

1 Financial leverage = Total assets ÷ Total IBM stockholders’ equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total IBM stockholders’ equity
= 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.
International Business Machines Corp.’s adjusted financial leverage declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to IBM hidden hidden hidden hidden hidden
Total IBM stockholders’ equity hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net income attributable to IBM hidden hidden hidden hidden hidden
Adjusted total IBM stockholders’ equity hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

2017 Calculations

1 ROE = 100 × Net income attributable to IBM ÷ Total IBM stockholders’ equity
= 100 × hidden ÷ hidden = hidden

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

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. International Business Machines Corp.’s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to IBM 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 (USD $ in millions)
Adjusted net income attributable to IBM 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: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24), 10-K (filing date: 2014-02-25).

2017 Calculations

1 ROA = 100 × Net income attributable to IBM ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Adjusted net income attributable to IBM ÷ 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. International Business Machines Corp.’s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.