Microsoft Excel LibreOffice Calc

Lowe’s Cos. Inc. (LOW)

Analysis of Income Taxes

Difficulty: Advanced

Income Tax Accounting Policy

Lowe’s establishes deferred income tax assets and liabilities for temporary differences between the tax and financial accounting bases of assets and liabilities. The tax effects of such differences are reflected in the consolidated balance sheets at the enacted tax rates expected to be in effect when the differences reverse. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a portion of the asset will not be realized. The tax balances and income tax expense recognized by Lowe’s are based on management’s interpretation of the tax statutes of multiple jurisdictions.

Lowe’s establishes a liability for tax positions for which there is uncertainty as to whether or not the position will be ultimately sustained. Lowe’s includes interest related to tax issues as part of net interest on the consolidated financial statements. Lowe’s records any applicable penalties related to tax issues within the income tax provision.

Source: 10-K (filing date: 2019-04-02).

Income Tax Expense (Benefit)

Lowe’s Cos. Inc., income tax expense (benefit), continuing operations

USD $ in millions

Microsoft Excel LibreOffice Calc
12 months ended Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
Federal 963  1,734  1,824  1,688  1,475  1,342 
State 274  252  275  248  221  203 
Current 1,237  1,986  2,099  1,936  1,696  1,545 
Federal (102) 60  6  (59) (112) (133)
State (55) (4) 3  (4) (6) (25)
Deferred (157) 56  9  (63) (118) (158)
Income tax provision 1,080  2,042  2,108  1,873  1,578  1,387 

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

Item Description The company
Current Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Lowe’s Cos. Inc.’s current declined from 2017 to 2018 and from 2018 to 2019.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Lowe’s Cos. Inc.’s deferred increased from 2017 to 2018 but then declined significantly from 2018 to 2019.
Income tax provision Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Lowe’s Cos. Inc.’s income tax provision declined from 2017 to 2018 and from 2018 to 2019.

Effective Income Tax Rate (EITR)

Lowe’s Cos. Inc., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
Statutory federal income tax rate 21.00% 33.70% 35.00% 35.00% 35.00% 35.00%
State income taxes, net of federal tax benefit 4.80% 2.90% 3.60% 3.60% 3.30% 2.90%
Valuation allowance, Australian joint venture 0.00% -0.60% 2.00% 4.20% 0.00% 0.00%
Goodwill impairment 5.50% 0.00% 0.00% 0.00% 0.00% 0.00%
Mexico impairment 1.50% 0.00% 0.00% 0.00% 0.00% 0.00%
Other, net -1.00% 1.20% -0.10% -0.40% -1.40% -0.10%
Effective tax rate 31.80% 37.20% 40.50% 42.40% 36.90% 37.80%

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

Item Description The company
Effective tax rate Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Lowe’s Cos. Inc.’s effective tax rate declined from 2017 to 2018 and from 2018 to 2019.

Components of Deferred Tax Assets and Liabilities

Lowe’s Cos. Inc., components of deferred tax assets and liabilities

USD $ in millions

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
Self-insurance 252  238  352  369  378  384 
Share-based payment expense 31  36  69  83  81  70 
Deferred rent 58  66  78  91  88  80 
Mexico impairment 74  –  –  –  –  – 
Impairment of investment –  –  381  270  –  – 
Capital loss carryforwards 223  225  –  –  –  – 
Foreign currency translation –  –  –  107  62  8 
Net operating losses 239  213  174  159  152  148 
Other, net 119  124  175  156  131  130 
Deferred tax assets 996  902  1,229  1,235  892  820 
Valuation allowance (569) (475) (578) (447) (170) (164)
Net deferred tax assets 427  427  651  788  722  656 
Property (76) (264) (417) (507) (534) (646)
Other, net (57) (23) (34) (40) (55) (49)
Deferred tax liabilities (133) (287) (451) (547) (589) (695)
Net deferred tax asset (liability) 294  140  200  241  133  (39)

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

Item Description The company
Deferred tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Lowe’s Cos. Inc.’s deferred tax assets declined from 2017 to 2018 but then slightly increased from 2018 to 2019.
Net deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.
Net deferred tax asset (liability) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. Lowe’s Cos. Inc.’s net deferred tax asset (liability) declined from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Deferred Tax Assets and Liabilities, Classification

Lowe’s Cos. Inc., deferred tax assets and liabilities, classification

USD $ in millions

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
Current deferred tax assets –  –  –  –  230  252 
Noncurrent deferred tax assets 294  168  222  241  –  – 
Noncurrent deferred tax liabilities –  28  22  –  97  291 

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

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. Lowe’s Cos. Inc.’s noncurrent deferred tax assets declined from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 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. Lowe’s Cos. Inc.’s noncurrent deferred tax liabilities increased from 2017 to 2018 but then declined significantly from 2018 to 2019.

Analyst Adjustments: Removal of Deferred Taxes

Lowe’s Cos. Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
Adjustment to Current Assets
Current assets (as reported) 14,228  12,772  12,000  10,561  10,080  10,296 
Less: Current deferred tax assets, net –  –  –  –  230  252 
Current assets (adjusted) 14,228  12,772  12,000  10,561  9,850  10,044 
Adjustment to Total Assets
Total assets (as reported) 34,508  35,291  34,408  31,266  31,827  32,732 
Less: Current deferred tax assets, net –  –  –  –  230  252 
Less: Noncurrent deferred tax assets, net 294  168  222  241  –  – 
Total assets (adjusted) 34,214  35,123  34,186  31,025  31,597  32,480 
Adjustment to Total Liabilities
Total liabilities (as reported) 30,864  29,418  27,974  23,612  21,859  20,879 
Less: Noncurrent deferred tax liabilities, net –  28  22  –  97  291 
Total liabilities (adjusted) 30,864  29,390  27,952  23,612  21,762  20,588 
Adjustment to Shareholders’ Equity
Shareholders’ equity (as reported) 3,644  5,873  6,434  7,654  9,968  11,853 
Less: Net deferred tax assets (liabilities) 294  140  200  241  133  (39)
Shareholders’ equity (adjusted) 3,350  5,733  6,234  7,413  9,835  11,892 
Adjustment to Net Earnings
Net earnings (as reported) 2,314  3,447  3,093  2,546  2,698  2,286 
Add: Deferred income tax expense (benefit) (157) 56  9  (63) (118) (158)
Net earnings (adjusted) 2,157  3,503  3,102  2,483  2,580  2,128 

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

Lowe’s Cos. Inc., Financial Data: Reported vs. Adjusted

Adjusted Ratios: Removal of Deferred Taxes (Summary)

Lowe’s Cos. Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
Current Ratio
Reported current ratio 0.98 1.06 1.00 1.01 1.08 1.16
Adjusted current ratio 0.98 1.06 1.00 1.01 1.05 1.13
Net Profit Margin
Reported net profit margin 3.25% 5.02% 4.76% 4.31% 4.80% 4.28%
Adjusted net profit margin 3.02% 5.11% 4.77% 4.20% 4.59% 3.98%
Total Asset Turnover
Reported total asset turnover 2.07 1.94 1.89 1.89 1.77 1.63
Adjusted total asset turnover 2.08 1.95 1.90 1.90 1.78 1.64
Financial Leverage
Reported financial leverage 9.47 6.01 5.35 4.08 3.19 2.76
Adjusted financial leverage 10.21 6.13 5.48 4.19 3.21 2.73
Return on Equity (ROE)
Reported ROE 63.50% 58.69% 48.07% 33.26% 27.07% 19.29%
Adjusted ROE 64.39% 61.10% 49.76% 33.50% 26.23% 17.89%
Return on Assets (ROA)
Reported ROA 6.71% 9.77% 8.99% 8.14% 8.48% 6.98%
Adjusted ROA 6.30% 9.97% 9.07% 8.00% 8.17% 6.55%

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Lowe’s Cos. Inc.’s adjusted current ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Lowe’s Cos. Inc.’s adjusted net profit margin improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Lowe’s Cos. 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.		 Lowe’s Cos. Inc.’s adjusted financial leverage 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. Lowe’s Cos. 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. Lowe’s Cos. Inc.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Lowe’s Cos. Inc., Ratios: Reported vs. Adjusted

Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Current assets 14,228  12,772  12,000  10,561  10,080  10,296 
Current liabilities 14,497  12,096  11,974  10,492  9,348  8,876 
Ratio
Current ratio1 0.98 1.06 1.00 1.01 1.08 1.16
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted current assets 14,228  12,772  12,000  10,561  9,850  10,044 
Current liabilities 14,497  12,096  11,974  10,492  9,348  8,876 
Ratio
Adjusted current ratio2 0.98 1.06 1.00 1.01 1.05 1.13

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

2019 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= 14,228 ÷ 14,497 = 0.98

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 14,228 ÷ 14,497 = 0.98

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Lowe’s Cos. Inc.’s adjusted current ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net earnings 2,314  3,447  3,093  2,546  2,698  2,286 
Net sales 71,309  68,619  65,017  59,074  56,223  53,417 
Ratio
Net profit margin1 3.25% 5.02% 4.76% 4.31% 4.80% 4.28%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net earnings 2,157  3,503  3,102  2,483  2,580  2,128 
Net sales 71,309  68,619  65,017  59,074  56,223  53,417 
Ratio
Adjusted net profit margin2 3.02% 5.11% 4.77% 4.20% 4.59% 3.98%

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

2019 Calculations

1 Net profit margin = 100 × Net earnings ÷ Net sales
= 100 × 2,314 ÷ 71,309 = 3.25%

2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Net sales
= 100 × 2,157 ÷ 71,309 = 3.02%

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Lowe’s Cos. Inc.’s adjusted net profit margin improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net sales 71,309  68,619  65,017  59,074  56,223  53,417 
Total assets 34,508  35,291  34,408  31,266  31,827  32,732 
Ratio
Total asset turnover1 2.07 1.94 1.89 1.89 1.77 1.63
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Net sales 71,309  68,619  65,017  59,074  56,223  53,417 
Adjusted total assets 34,214  35,123  34,186  31,025  31,597  32,480 
Ratio
Adjusted total asset turnover2 2.08 1.95 1.90 1.90 1.78 1.64

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

2019 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= 71,309 ÷ 34,508 = 2.07

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 71,309 ÷ 34,214 = 2.08

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Lowe’s Cos. Inc.’s adjusted total asset turnover improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Total assets 34,508  35,291  34,408  31,266  31,827  32,732 
Shareholders’ equity 3,644  5,873  6,434  7,654  9,968  11,853 
Ratio
Financial leverage1 9.47 6.01 5.35 4.08 3.19 2.76
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted total assets 34,214  35,123  34,186  31,025  31,597  32,480 
Adjusted shareholders’ equity 3,350  5,733  6,234  7,413  9,835  11,892 
Ratio
Adjusted financial leverage2 10.21 6.13 5.48 4.19 3.21 2.73

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

2019 Calculations

1 Financial leverage = Total assets ÷ Shareholders’ equity
= 34,508 ÷ 3,644 = 9.47

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= 34,214 ÷ 3,350 = 10.21

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.		 Lowe’s Cos. Inc.’s adjusted financial leverage increased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net earnings 2,314  3,447  3,093  2,546  2,698  2,286 
Shareholders’ equity 3,644  5,873  6,434  7,654  9,968  11,853 
Ratio
ROE1 63.50% 58.69% 48.07% 33.26% 27.07% 19.29%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net earnings 2,157  3,503  3,102  2,483  2,580  2,128 
Adjusted shareholders’ equity 3,350  5,733  6,234  7,413  9,835  11,892 
Ratio
Adjusted ROE2 64.39% 61.10% 49.76% 33.50% 26.23% 17.89%

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

2019 Calculations

1 ROE = 100 × Net earnings ÷ Shareholders’ equity
= 100 × 2,314 ÷ 3,644 = 63.50%

2 Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted shareholders’ equity
= 100 × 2,157 ÷ 3,350 = 64.39%

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Lowe’s Cos. Inc.’s adjusted ROE improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Feb 1, 2019 Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net earnings 2,314  3,447  3,093  2,546  2,698  2,286 
Total assets 34,508  35,291  34,408  31,266  31,827  32,732 
Ratio
ROA1 6.71% 9.77% 8.99% 8.14% 8.48% 6.98%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net earnings 2,157  3,503  3,102  2,483  2,580  2,128 
Adjusted total assets 34,214  35,123  34,186  31,025  31,597  32,480 
Ratio
Adjusted ROA2 6.30% 9.97% 9.07% 8.00% 8.17% 6.55%

Based on: 10-K (filing date: 2019-04-02), 10-K (filing date: 2018-04-02), 10-K (filing date: 2017-04-04), 10-K (filing date: 2016-03-29), 10-K (filing date: 2015-03-31), 10-K (filing date: 2014-03-31).

2019 Calculations

1 ROA = 100 × Net earnings ÷ Total assets
= 100 × 2,314 ÷ 34,508 = 6.71%

2 Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × 2,157 ÷ 34,214 = 6.30%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Lowe’s Cos. Inc.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.