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: 2018-04-02).

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 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
Federal 1,734  1,824  1,688  1,475  1,342  1,162 
State 252  275  248  221  203  155 
Current 1,986  2,099  1,936  1,696  1,545  1,317 
Federal 60  6  (59) (112) (133) (133)
State (4) 3  (4) (6) (25) (6)
Deferred 56  9  (63) (118) (158) (139)
Income tax provision 2,042  2,108  1,873  1,578  1,387  1,178 

Based on: 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), 10-K (filing date: 2013-04-02).

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 increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Lowe’s Cos. Inc.’s deferred increased from 2016 to 2017 and from 2017 to 2018.
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 increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Effective Income Tax Rate (EITR)

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

Microsoft Excel LibreOffice Calc
Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
Statutory federal income tax rate 33.70% 35.00% 35.00% 35.00% 35.00% 35.00%
State income taxes, net of federal tax benefit 2.90% 3.60% 3.60% 3.30% 2.90% 3.10%
Valuation allowance, Australian joint venture -0.60% 2.00% 4.20% 0.00% 0.00% 0.00%
Other, net 1.20% -0.10% -0.40% -1.40% -0.10% -0.50%
Effective tax rate 37.20% 40.50% 42.40% 36.90% 37.80% 37.60%

Based on: 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), 10-K (filing date: 2013-04-02).

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 2016 to 2017 and from 2017 to 2018.

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 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
Self-insurance 238  352  369  378  384  375 
Share-based payment expense 36  69  83  81  70  73 
Deferred rent 66  78  91  88  80  80 
Impairment of investment –  381  270  –  –  – 
Capital loss carryforwards 225  –  –  –  –  – 
Foreign currency translation –  –  107  62  8  – 
Net operating losses 213  174  159  152  148  131 
Other, net 124  175  156  131  130  113 
Deferred tax assets 902  1,229  1,235  892  820  772 
Valuation allowance (475) (578) (447) (170) (164) (142)
Net deferred tax assets 427  651  788  722  656  630 
Property (264) (417) (507) (534) (646) (783)
Other, net (23) (34) (40) (55) (49) (85)
Deferred tax liabilities (287) (451) (547) (589) (695) (868)
Net deferred tax asset (liability) 140  200  241  133  (39) (238)

Based on: 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), 10-K (filing date: 2013-04-02).

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 2016 to 2017 and from 2017 to 2018.
Net deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Lowe’s Cos. Inc.’s net deferred tax assets declined from 2016 to 2017 and from 2017 to 2018.
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 2016 to 2017 and from 2017 to 2018.

Deferred Tax Assets and Liabilities, Classification

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

USD $ in millions

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Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
Current deferred tax assets –  –  –  230  252  217 
Noncurrent deferred tax assets 168  222  241  –  –  – 
Noncurrent deferred tax liabilities 28  22  –  97  291  455 

Based on: 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), 10-K (filing date: 2013-04-02).

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 2016 to 2017 and from 2017 to 2018.
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 2016 to 2017 and from 2017 to 2018.

Analyst Adjustments: Removal of Deferred Taxes

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

USD $ in millions

Microsoft Excel LibreOffice Calc
Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
Adjustment to Current Assets
Current assets (as reported) 12,772  12,000  10,561  10,080  10,296  9,784 
Less: Current deferred tax assets, net –  –  –  230  252  217 
Current assets (adjusted) 12,772  12,000  10,561  9,850  10,044  9,567 
Adjustment to Total Assets
Total assets (as reported) 35,291  34,408  31,266  31,827  32,732  32,666 
Less: Current deferred tax assets, net –  –  –  230  252  217 
Less: Noncurrent deferred tax assets, net 168  222  241  –  –  – 
Total assets (adjusted) 35,123  34,186  31,025  31,597  32,480  32,449 
Adjustment to Total Liabilities
Total liabilities (as reported) 29,418  27,974  23,612  21,859  20,879  18,809 
Less: Noncurrent deferred tax liabilities, net 28  22  –  97  291  455 
Total liabilities (adjusted) 29,390  27,952  23,612  21,762  20,588  18,354 
Adjustment to Shareholders’ Equity
Shareholders’ equity (as reported) 5,873  6,434  7,654  9,968  11,853  13,857 
Less: Net deferred tax assets (liabilities) 140  200  241  133  (39) (238)
Shareholders’ equity (adjusted) 5,733  6,234  7,413  9,835  11,892  14,095 
Adjustment to Net Earnings
Net earnings (as reported) 3,447  3,093  2,546  2,698  2,286  1,959 
Add: Deferred income tax expense (benefit) 56  9  (63) (118) (158) (139)
Net earnings (adjusted) 3,503  3,102  2,483  2,580  2,128  1,820 

Based on: 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), 10-K (filing date: 2013-04-02).

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 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
Current Ratio
Reported current ratio 1.06 1.00 1.01 1.08 1.16 1.27
Adjusted current ratio 1.06 1.00 1.01 1.05 1.13 1.24
Net Profit Margin
Reported net profit margin 5.02% 4.76% 4.31% 4.80% 4.28% 3.88%
Adjusted net profit margin 5.11% 4.77% 4.20% 4.59% 3.98% 3.60%
Total Asset Turnover
Reported total asset turnover 1.94 1.89 1.89 1.77 1.63 1.55
Adjusted total asset turnover 1.95 1.90 1.90 1.78 1.64 1.56
Financial Leverage
Reported financial leverage 6.01 5.35 4.08 3.19 2.76 2.36
Adjusted financial leverage 6.13 5.48 4.19 3.21 2.73 2.30
Return on Equity (ROE)
Reported ROE 58.69% 48.07% 33.26% 27.07% 19.29% 14.14%
Adjusted ROE 61.10% 49.76% 33.50% 26.23% 17.89% 12.91%
Return on Assets (ROA)
Reported ROA 9.77% 8.99% 8.14% 8.48% 6.98% 6.00%
Adjusted ROA 9.97% 9.07% 8.00% 8.17% 6.55% 5.61%

Based on: 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), 10-K (filing date: 2013-04-02).

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 deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
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 2016 to 2017 and from 2017 to 2018.
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 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.		 Lowe’s Cos. 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. Lowe’s Cos. Inc.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Lowe’s Cos. Inc.’s adjusted ROA improved from 2016 to 2017 and from 2017 to 2018.

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

Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
As Reported
Selected Financial Data (USD $ in millions)
Current assets 12,772  12,000  10,561  10,080  10,296  9,784 
Current liabilities 12,096  11,974  10,492  9,348  8,876  7,708 
Ratio
Current ratio1 1.06 1.00 1.01 1.08 1.16 1.27
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted current assets 12,772  12,000  10,561  9,850  10,044  9,567 
Current liabilities 12,096  11,974  10,492  9,348  8,876  7,708 
Ratio
Adjusted current ratio2 1.06 1.00 1.01 1.05 1.13 1.24

Based on: 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), 10-K (filing date: 2013-04-02).

2018 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= 12,772 ÷ 12,096 = 1.06

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 12,772 ÷ 12,096 = 1.06

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 deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net earnings 3,447  3,093  2,546  2,698  2,286  1,959 
Net sales 68,619  65,017  59,074  56,223  53,417  50,521 
Ratio
Net profit margin1 5.02% 4.76% 4.31% 4.80% 4.28% 3.88%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net earnings 3,503  3,102  2,483  2,580  2,128  1,820 
Net sales 68,619  65,017  59,074  56,223  53,417  50,521 
Ratio
Adjusted net profit margin2 5.11% 4.77% 4.20% 4.59% 3.98% 3.60%

Based on: 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), 10-K (filing date: 2013-04-02).

2018 Calculations

1 Net profit margin = 100 × Net earnings ÷ Net sales
= 100 × 3,447 ÷ 68,619 = 5.02%

2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Net sales
= 100 × 3,503 ÷ 68,619 = 5.11%

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 2016 to 2017 and from 2017 to 2018.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net sales 68,619  65,017  59,074  56,223  53,417  50,521 
Total assets 35,291  34,408  31,266  31,827  32,732  32,666 
Ratio
Total asset turnover1 1.94 1.89 1.89 1.77 1.63 1.55
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Net sales 68,619  65,017  59,074  56,223  53,417  50,521 
Adjusted total assets 35,123  34,186  31,025  31,597  32,480  32,449 
Ratio
Adjusted total asset turnover2 1.95 1.90 1.90 1.78 1.64 1.56

Based on: 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), 10-K (filing date: 2013-04-02).

2018 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= 68,619 ÷ 35,291 = 1.94

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 68,619 ÷ 35,123 = 1.95

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 deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
As Reported
Selected Financial Data (USD $ in millions)
Total assets 35,291  34,408  31,266  31,827  32,732  32,666 
Shareholders’ equity 5,873  6,434  7,654  9,968  11,853  13,857 
Ratio
Financial leverage1 6.01 5.35 4.08 3.19 2.76 2.36
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted total assets 35,123  34,186  31,025  31,597  32,480  32,449 
Adjusted shareholders’ equity 5,733  6,234  7,413  9,835  11,892  14,095 
Ratio
Adjusted financial leverage2 6.13 5.48 4.19 3.21 2.73 2.30

Based on: 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), 10-K (filing date: 2013-04-02).

2018 Calculations

1 Financial leverage = Total assets ÷ Shareholders’ equity
= 35,291 ÷ 5,873 = 6.01

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= 35,123 ÷ 5,733 = 6.13

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 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net earnings 3,447  3,093  2,546  2,698  2,286  1,959 
Shareholders’ equity 5,873  6,434  7,654  9,968  11,853  13,857 
Ratio
ROE1 58.69% 48.07% 33.26% 27.07% 19.29% 14.14%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net earnings 3,503  3,102  2,483  2,580  2,128  1,820 
Adjusted shareholders’ equity 5,733  6,234  7,413  9,835  11,892  14,095 
Ratio
Adjusted ROE2 61.10% 49.76% 33.50% 26.23% 17.89% 12.91%

Based on: 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), 10-K (filing date: 2013-04-02).

2018 Calculations

1 ROE = 100 × Net earnings ÷ Shareholders’ equity
= 100 × 3,447 ÷ 5,873 = 58.69%

2 Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted shareholders’ equity
= 100 × 3,503 ÷ 5,733 = 61.10%

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 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Feb 2, 2018 Feb 3, 2017 Jan 29, 2016 Jan 30, 2015 Jan 31, 2014 Feb 1, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net earnings 3,447  3,093  2,546  2,698  2,286  1,959 
Total assets 35,291  34,408  31,266  31,827  32,732  32,666 
Ratio
ROA1 9.77% 8.99% 8.14% 8.48% 6.98% 6.00%
Adjusted for Deferred Taxes
Selected Financial Data (USD $ in millions)
Adjusted net earnings 3,503  3,102  2,483  2,580  2,128  1,820 
Adjusted total assets 35,123  34,186  31,025  31,597  32,480  32,449 
Ratio
Adjusted ROA2 9.97% 9.07% 8.00% 8.17% 6.55% 5.61%

Based on: 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), 10-K (filing date: 2013-04-02).

2018 Calculations

1 ROA = 100 × Net earnings ÷ Total assets
= 100 × 3,447 ÷ 35,291 = 9.77%

2 Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × 3,503 ÷ 35,123 = 9.97%

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 2016 to 2017 and from 2017 to 2018.