McKesson Corp. (NYSE:MCK)

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

McKesson Corp., components of deferred tax assets and liabilities

US$ in millions

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
Receivable allowances	110)	83)	106)	84)	44)	48)
Deferred revenue	77)	72)	136)	106)	114)	107)
Compensation and benefit related accruals	710)	681)	641)	553)	447)	409)
Net operating loss and credit carryforwards	367)	316)	430)	341)	400)	494)
Other	275)	266)	289)	281)	431)	338)
Subtotal	1,539)	1,418)	1,602)	1,365)	1,436)	1,396)
Valuation allowance	(267)	(229)	(270)	(118)	(101)	(99)
Assets	1,272)	1,189)	1,332)	1,247)	1,335)	1,297)
Inventory valuation and other assets	(2,619)	(2,333)	(2,163)	(2,089)	(1,635)	(1,450)
Fixed assets and systems development costs	(326)	(324)	(321)	(267)	(263)	(221)
Intangibles	(981)	(1,073)	(1,531)	(734)	(544)	(532)
Other	(21)	(61)	(118)	(24)	(53)	(58)
Liabilities	(3,947)	(3,791)	(4,133)	(3,114)	(2,495)	(2,261)
Net deferred tax asset (liability)	(2,675)	(2,602)	(2,801)	(1,867)	(1,160)	(964)

The net deferred tax position shifted from a liability of $964 million in 2011 to a significantly larger liability of $2,675 million by 2016. This expansion indicates that the growth in deferred tax liabilities consistently outpaced the growth in deferred tax assets over the analyzed six-year period.

Deferred Tax Asset Composition: Gross deferred tax assets grew from $1,396 million in 2011 to $1,539 million in 2016. The primary driver of this increase was compensation and benefit related accruals, which rose steadily from $409 million to $710 million. Other components, such as net operating loss and credit carryforwards, remained volatile, fluctuating between $316 million and $494 million without a clear linear trend.
Deferred Tax Liability Drivers: Deferred tax liabilities experienced substantial growth, increasing from $2,261 million in 2011 to $3,947 million in 2016. The most significant contributor was inventory valuation and other assets, which increased from $1,450 million to $2,619 million. Intangibles also contributed to the liability, peaking at $1,531 million in 2014 before decreasing to $981 million by 2016.
Valuation Allowance and Net Impact: The valuation allowance increased from $99 million in 2011 to $267 million in 2016, reflecting a more conservative estimate of the realizability of deferred tax assets. The interaction between the rising liabilities and the moderated growth of assets resulted in a net deferred tax liability that deepened each year, with the most pronounced increase occurring between 2013 and 2014, where the net liability expanded by approximately $934 million.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

McKesson Corp., deferred tax assets and liabilities, classification

US$ in millions

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
Current net deferred tax asset	—)	26)	51)	16)	—)	—)
Current net deferred tax liability	—)	1,819)	1,588)	1,626)	1,092)	1,036)
Long-term deferred tax asset	59)	50)	19)	21)	20)	72)
Long-term deferred tax liability	2,734)	859)	1,283)	278)	88)	—)

The financial data indicates a consistent and expanding net deferred tax liability position over the period from 2011 to 2016. Tax liabilities significantly exceed tax assets in both current and long-term classifications, suggesting an accumulation of taxable income that will be recognized in future periods.

Current Net Deferred Tax Position: Current net deferred tax liabilities exhibited a steady upward trajectory, increasing from 1,036 million in 2011 to 1,819 million by 2015. During this same period, current net deferred tax assets remained minimal or absent, peaking at 51 million in 2014 before declining to 26 million in 2015.
Long-term Deferred Tax Position: Long-term deferred tax liabilities showed substantial growth and volatility. From a reported 88 million in 2012, these liabilities rose sharply to 1,283 million in 2014, experienced a reduction to 859 million in 2015, and culminated in a significant spike to 2,734 million by March 31, 2016. In contrast, long-term deferred tax assets remained relatively low, fluctuating between a high of 72 million in 2011 and a low of 19 million in 2014.
Aggregate Liability Trajectory: A clear shift is observable in the composition of tax obligations. While the current liability grew steadily, the long-term liability increased exponentially towards the end of the period. The widening gap between deferred tax assets and liabilities reflects a significant increase in the company's future deferred tax obligations.

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McKesson Corp., Financial Data: Reported vs. Adjusted

Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

McKesson Corp., adjustments to financial statements

US$ in millions

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
Adjustment to Current Assets
Current assets (as reported)	38,437)	36,670)	32,573)	23,170)	23,603)	22,357)
Less: Current deferred tax assets, net	—)	26)	51)	16)	—)	—)
Current assets (adjusted)	38,437)	36,644)	32,522)	23,154)	23,603)	22,357)
Adjustment to Total Assets
Total assets (as reported)	56,563)	53,870)	51,759)	34,786)	33,093)	30,886)
Less: Current deferred tax assets, net	—)	26)	51)	16)	—)	—)
Less: Noncurrent deferred tax assets, net	59)	50)	19)	21)	20)	72)
Total assets (adjusted)	56,504)	53,794)	51,689)	34,749)	33,073)	30,814)
Adjustment to Current Liabilities
Current liabilities (as reported)	35,071)	33,497)	29,501)	21,357)	21,686)	18,726)
Less: Current deferred tax liabilities, net	—)	1,819)	1,588)	1,626)	1,092)	1,036)
Current liabilities (adjusted)	35,071)	31,678)	27,913)	19,731)	20,594)	17,690)
Adjustment to Total Liabilities
Total liabilities (as reported)	46,149)	44,399)	41,441)	27,716)	26,262)	23,666)
Less: Current deferred tax liabilities, net	—)	1,819)	1,588)	1,626)	1,092)	1,036)
Less: Noncurrent deferred tax liabilities, net	2,734)	859)	1,283)	278)	88)	—)
Total liabilities (adjusted)	43,415)	41,721)	38,570)	25,812)	25,082)	22,630)
Adjustment to Total McKesson Corporation Stockholders’ Equity
Total McKesson Corporation stockholders’ equity (as reported)	8,924)	8,001)	8,522)	7,070)	6,831)	7,220)
Less: Net deferred tax assets (liabilities)	(2,675)	(2,602)	(2,801)	(1,867)	(1,160)	(964)
Total McKesson Corporation stockholders’ equity (adjusted)	11,599)	10,603)	11,323)	8,937)	7,991)	8,184)
Adjustment to Net Income Attributable To McKesson Corporation
Net income attributable to McKesson Corporation (as reported)	2,258)	1,476)	1,263)	1,338)	1,403)	1,202)
Add: Deferred income tax expense (benefit)	64)	171)	16)	606)	165)	128)
Net income attributable to McKesson Corporation (adjusted)	2,322)	1,647)	1,279)	1,944)	1,568)	1,330)

The removal of deferred taxes from the financial statements results in a consistent divergence between reported and adjusted figures across all primary balance sheet and income statement categories from 2011 to 2016. The most significant impacts are observed in the reduction of total liabilities and the corresponding increase in stockholders' equity, suggesting a substantial volume of deferred tax liabilities present in the reported figures.

Impact on Asset Valuation: Adjusted total assets are consistently lower than reported total assets throughout the analyzed period. However, the variance is minimal, indicating that deferred tax assets comprise a small portion of the overall asset base compared to the impact on liabilities and equity.
Impact on Liability Structure: A significant reduction is observed in both current and total liabilities when deferred taxes are removed. This downward adjustment is persistent across all six years, with the gap between reported and adjusted total liabilities widening over time, reaching a difference of approximately 2.7 billion US dollars by March 31, 2016.
Impact on Stockholders' Equity: The removal of deferred tax liabilities leads to a marked increase in adjusted stockholders' equity. While reported equity grew modestly from 7.2 billion US dollars in 2011 to 8.9 billion US dollars in 2016, the adjusted equity reflects a much higher valuation, starting at 8.2 billion US dollars in 2011 and rising to 11.6 billion US dollars by 2016.
Impact on Net Income: Adjusted net income is consistently higher than reported net income. The most pronounced difference occurred on March 31, 2013, where adjusted net income exceeded reported net income by approximately 606 million US dollars, indicating that deferred tax expenses significantly impacted the reported profitability during that period.
Long-term Financial Trends: Between 2013 and 2014, a sharp increase in both total assets and total liabilities is observed, suggesting a major expansion or acquisition. Despite this volatility, the relationship between reported and adjusted figures remains stable, with the adjustment for deferred taxes consistently inflating equity and net income while deflating liabilities.

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McKesson Corp., Financial Ratios: Reported vs. Adjusted

Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

McKesson Corp., adjusted financial ratios

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
Current Ratio
Reported current ratio	1.10	1.09	1.10	1.08	1.09	1.19
Adjusted current ratio	1.10	1.16	1.17	1.17	1.15	1.26
Net Profit Margin
Reported net profit margin	1.18%	0.82%	0.92%	1.09%	1.14%	1.07%
Adjusted net profit margin	1.22%	0.92%	0.93%	1.59%	1.28%	1.19%
Total Asset Turnover
Reported total asset turnover	3.37	3.32	2.66	3.52	3.71	3.63
Adjusted total asset turnover	3.38	3.33	2.66	3.52	3.71	3.64
Financial Leverage
Reported financial leverage	6.34	6.73	6.07	4.92	4.84	4.28
Adjusted financial leverage	4.87	5.07	4.56	3.89	4.14	3.77
Return on Equity (ROE)
Reported ROE	25.30%	18.45%	14.82%	18.93%	20.54%	16.65%
Adjusted ROE	20.02%	15.53%	11.30%	21.75%	19.62%	16.25%
Return on Assets (ROA)
Reported ROA	3.99%	2.74%	2.44%	3.85%	4.24%	3.89%
Adjusted ROA	4.11%	3.06%	2.47%	5.59%	4.74%	4.32%

The adjustment of financial ratios through the removal of deferred taxes reveals a consistent divergence between reported and adjusted performance metrics from 2011 to 2016. The most significant impacts are observed in liquidity, financial leverage, and return on assets, suggesting that deferred tax obligations exert a notable influence on the reported balance sheet and profitability metrics.

Liquidity and Efficiency: The adjusted current ratio remained higher than the reported ratio for the majority of the period, indicating a stronger liquidity position when deferred taxes are excluded. This gap narrowed over time, with both metrics converging at 1.10 by March 31, 2016. Total asset turnover showed negligible variance between reported and adjusted figures, maintaining a stable trend between 3.3 and 3.7, with a synchronized decline in 2014 to 2.66.
Profitability Margins: Adjusted net profit margins were consistently higher than reported margins throughout the analysis period. The most pronounced variance occurred in 2013, where the adjusted margin was 1.59% compared to a reported 1.09%. By March 31, 2016, the adjusted margin slightly exceeded the reported margin at 1.22% versus 1.18%.
Financial Leverage: A substantial disparity is evident in financial leverage, as reported ratios were consistently and significantly higher than adjusted ratios. Reported leverage trended upward, peaking at 6.73 in 2015, while the adjusted leverage for the same period was notably lower at 5.07. This indicates that the inclusion of deferred tax liabilities materially inflates the perceived financial leverage of the organization.
Returns on Equity and Assets: The removal of deferred taxes consistently improved the Return on Assets (ROA), with adjusted figures remaining higher than reported values throughout the six-year period. In contrast, Reported Return on Equity (ROE) generally exceeded Adjusted ROE from 2013 onward, peaking in 2016 at 25.30% reported versus 20.02% adjusted. This suggests that while deferred tax liabilities diminish reported asset efficiency, they simultaneously reduce the equity base, thereby inflating the reported return on equity.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Current assets	38,437)	36,670)	32,573)	23,170)	23,603)	22,357)
Current liabilities	35,071)	33,497)	29,501)	21,357)	21,686)	18,726)
Liquidity Ratio
Current ratio¹	1.10	1.09	1.10	1.08	1.09	1.19
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted current assets	38,437)	36,644)	32,522)	23,154)	23,603)	22,357)
Adjusted current liabilities	35,071)	31,678)	27,913)	19,731)	20,594)	17,690)
Liquidity Ratio
Adjusted current ratio²	1.10	1.16	1.17	1.17	1.15	1.26

2016 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 38,437 ÷ 35,071 = 1.10

² Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= 38,437 ÷ 35,071 = 1.10

A comprehensive review of the liquidity metrics reveals a sustained expansion in both current assets and current liabilities between 2011 and 2016. While reported current assets increased from 22,357 million US dollars to 38,437 million US dollars, reported current liabilities rose proportionally from 18,726 million US dollars to 35,071 million US dollars.

Reported Current Ratio Trends: The reported current ratio remained relatively stable throughout the analyzed period, fluctuating within a narrow range between 1.08 and 1.19. A slight decrease occurred between 2011 and 2012, after which the ratio consolidated and remained near 1.10.
Adjusted Current Ratio Analysis: The adjusted current ratio consistently exceeded the reported ratio from 2011 to 2015, suggesting that the adjustments—specifically the reduction of current liabilities—provided a more favorable view of short-term solvency. This ratio decreased from a high of 1.26 in 2011 to a plateau between 1.15 and 1.17 from 2012 through 2015.
Metric Convergence: A total convergence of reported and adjusted figures is observed as of March 31, 2016. In this period, the adjusted current assets, liabilities, and the resulting current ratio aligned exactly with the reported figures, eliminating the liquidity variance present in the preceding five years.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to McKesson Corporation	2,258)	1,476)	1,263)	1,338)	1,403)	1,202)
Revenues	190,884)	179,045)	137,609)	122,455)	122,734)	112,084)
Profitability Ratio
Net profit margin¹	1.18%	0.82%	0.92%	1.09%	1.14%	1.07%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to McKesson Corporation	2,322)	1,647)	1,279)	1,944)	1,568)	1,330)
Revenues	190,884)	179,045)	137,609)	122,455)	122,734)	112,084)
Profitability Ratio
Adjusted net profit margin²	1.22%	0.92%	0.93%	1.59%	1.28%	1.19%

2016 Calculations

¹ Net profit margin = 100 × Net income attributable to McKesson Corporation ÷ Revenues
= 100 × 2,258 ÷ 190,884 = 1.18%

² Adjusted net profit margin = 100 × Adjusted net income attributable to McKesson Corporation ÷ Revenues
= 100 × 2,322 ÷ 190,884 = 1.22%

Between March 31, 2011, and March 31, 2016, net income exhibited an overall upward trajectory, culminating in a substantial increase during the final fiscal year. Reported net income grew from 1,202 million US$ to 2,258 million US$, while adjusted net income rose from 1,330 million US$ to 2,322 million US$. Despite the growth in absolute earnings, profit margins remained thin, generally fluctuating around the 1% threshold, which is characteristic of high-volume operational models.

Adjusted Net Profit Margin Volatility: The adjusted net profit margin demonstrated significant fluctuations over the six-year period. After rising from 1.19% in 2011 to a peak of 1.59% in 2013, the margin experienced a sharp contraction, falling to 0.93% in 2014 and 0.92% in 2015. A recovery was observed by March 31, 2016, with the margin returning to 1.22%.
Variance Between Reported and Adjusted Performance: Adjusted net income and profit margins consistently exceeded reported figures, indicating that non-recurring items or specific accounting adjustments periodically negatively impacted reported results. The most pronounced divergence occurred in 2013, where the adjusted net profit margin was 50 basis points higher than the reported margin of 1.09%.
Relationship Between Earnings Growth and Margin Compression: A divergence is noted between absolute income growth and margin percentages. Although 2016 marked the highest reported and adjusted net income levels, the adjusted net profit margin of 1.22% remained lower than the 2013 peak of 1.59%. This suggests that while the scale of operations and total profitability increased, the efficiency of converting revenue into profit experienced intermittent pressure between 2014 and 2015 before partially recovering.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Revenues	190,884)	179,045)	137,609)	122,455)	122,734)	112,084)
Total assets	56,563)	53,870)	51,759)	34,786)	33,093)	30,886)
Activity Ratio
Total asset turnover¹	3.37	3.32	2.66	3.52	3.71	3.63
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Revenues	190,884)	179,045)	137,609)	122,455)	122,734)	112,084)
Adjusted total assets	56,504)	53,794)	51,689)	34,749)	33,073)	30,814)
Activity Ratio
Adjusted total asset turnover²	3.38	3.33	2.66	3.52	3.71	3.64

2016 Calculations

¹ Total asset turnover = Revenues ÷ Total assets
= 190,884 ÷ 56,563 = 3.37

² Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= 190,884 ÷ 56,504 = 3.38

The analysis of total assets and asset turnover between fiscal years 2011 and 2016 reveals a period of substantial balance sheet expansion and subsequent adjustments in operational efficiency.

Asset Growth Trends: Reported total assets grew from US$ 30,886 million in 2011 to US$ 56,563 million by 2016. A significant acceleration in asset accumulation occurred between March 31, 2013, and March 31, 2014, where assets increased from US$ 34,786 million to US$ 51,759 million. Adjusted total assets followed a nearly identical trajectory, maintaining a minimal variance from reported figures across the entire period.
Total Asset Turnover Dynamics: The asset turnover ratio exhibited a peak of 3.71 in 2012 before experiencing a sharp contraction to 2.66 in 2014. This decline corresponds directly with the period of most rapid asset growth, suggesting that the increase in the asset base outpaced revenue growth during that fiscal year. Following this trough, a recovery trend is observed, with the ratio improving to 3.32 in 2015 and 3.37 in 2016.
Comparison of Reported and Adjusted Metrics: A high degree of correlation exists between reported and adjusted metrics. The adjusted total asset turnover remained virtually identical to the reported turnover in most years, with only marginal differences observed in 2011, 2015, and 2016. These slight variances indicate that the adjustments applied to the total asset base had a negligible impact on the overall assessment of asset utilization efficiency.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Total assets	56,563)	53,870)	51,759)	34,786)	33,093)	30,886)
Total McKesson Corporation stockholders’ equity	8,924)	8,001)	8,522)	7,070)	6,831)	7,220)
Solvency Ratio
Financial leverage¹	6.34	6.73	6.07	4.92	4.84	4.28
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets	56,504)	53,794)	51,689)	34,749)	33,073)	30,814)
Adjusted total McKesson Corporation stockholders’ equity	11,599)	10,603)	11,323)	8,937)	7,991)	8,184)
Solvency Ratio
Adjusted financial leverage²	4.87	5.07	4.56	3.89	4.14	3.77

2016 Calculations

¹ Financial leverage = Total assets ÷ Total McKesson Corporation stockholders’ equity
= 56,563 ÷ 8,924 = 6.34

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total McKesson Corporation stockholders’ equity
= 56,504 ÷ 11,599 = 4.87

An analysis of the financial structure between 2011 and 2016 reveals a significant expansion of the balance sheet, accompanied by a corresponding increase in financial leverage.

Asset Growth Trends: Total assets experienced steady growth from 2011 to 2013, followed by a substantial increase between March 31, 2013, and March 31, 2014, where reported assets rose from 34,786 million to 51,759 million. This upward trajectory continued through 2016, ending at 56,563 million. Adjusted total assets closely mirrored this trend, maintaining a slight downward variance from reported figures throughout the period.
Equity and Capital Structure: Reported stockholders' equity exhibited fluctuations, starting at 7,220 million in 2011 and ending at 8,924 million in 2016. In contrast, adjusted stockholders' equity remained consistently higher than reported equity, growing from 8,184 million in 2011 to 11,599 million in 2016. The widening gap between reported and adjusted equity suggests that specific financial adjustments significantly bolster the perceived equity base.
Financial Leverage Analysis: The reported financial leverage ratio showed a general upward trend, rising from 4.28 in 2011 to a peak of 6.73 in 2015, before moderating to 6.34 in 2016. The adjusted financial leverage ratio followed a similar trajectory but remained consistently lower, starting at 3.77 in 2011 and peaking at 5.07 in 2015. This discrepancy indicates that the adjustments applied to equity and assets reduce the overall leverage profile and present a more conservative view of financial risk.

The correlation between the sharp increase in total assets in 2014 and the subsequent rise in leverage ratios indicates a period of balance sheet expansion. The moderation of both reported and adjusted leverage ratios in 2016 suggests a transition toward deleveraging or a relative increase in equity holdings at the close of the period.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to McKesson Corporation	2,258)	1,476)	1,263)	1,338)	1,403)	1,202)
Total McKesson Corporation stockholders’ equity	8,924)	8,001)	8,522)	7,070)	6,831)	7,220)
Profitability Ratio
ROE¹	25.30%	18.45%	14.82%	18.93%	20.54%	16.65%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to McKesson Corporation	2,322)	1,647)	1,279)	1,944)	1,568)	1,330)
Adjusted total McKesson Corporation stockholders’ equity	11,599)	10,603)	11,323)	8,937)	7,991)	8,184)
Profitability Ratio
Adjusted ROE²	20.02%	15.53%	11.30%	21.75%	19.62%	16.25%

2016 Calculations

¹ ROE = 100 × Net income attributable to McKesson Corporation ÷ Total McKesson Corporation stockholders’ equity
= 100 × 2,258 ÷ 8,924 = 25.30%

² Adjusted ROE = 100 × Adjusted net income attributable to McKesson Corporation ÷ Adjusted total McKesson Corporation stockholders’ equity
= 100 × 2,322 ÷ 11,599 = 20.02%

An analysis of the financial performance from March 31, 2011, to March 31, 2016, reveals a general upward trajectory in profitability and equity, although return on equity metrics exhibited notable volatility during this period.

Net Income Trends: Reported net income attributable to the corporation increased from 1,202 million US dollars in 2011 to 2,258 million US dollars in 2016. Adjusted net income followed a similar growth path, starting at 1,330 million US dollars and ending at 2,322 million US dollars. A significant divergence is observed in 2013, where adjusted net income reached 1,944 million US dollars, substantially exceeding the reported figure of 1,338 million US dollars.
Stockholders' Equity Growth: Reported stockholders' equity grew from 7,220 million US dollars in 2011 to 8,924 million US dollars in 2016. Adjusted equity remained consistently higher than reported equity throughout the six-year period, rising from 8,184 million US dollars to 11,599 million US dollars. The most substantial increase in adjusted equity occurred between 2013 and 2014, shifting from 8,937 million US dollars to 11,323 million US dollars.
Return on Equity (ROE) Analysis: Reported ROE demonstrated a volatile trend, reaching a peak of 25.30% in 2016 after a low of 14.82% in 2014. In contrast, Adjusted ROE was generally lower than Reported ROE in most years, with the exception of 2013 when Adjusted ROE peaked at 21.75% compared to a Reported ROE of 18.93%. A sharp decline in Adjusted ROE is noted in 2014, dropping to 11.30%, which aligns with the period of most significant expansion in adjusted stockholders' equity.

The divergence between reported and adjusted figures suggests that non-recurring items or specific tax adjustments had a material impact on the perceived efficiency of equity utilization. While net income grew steadily, the Adjusted ROE remained more conservative than the Reported ROE by the end of the period, finishing at 20.02% compared to 25.30%.

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Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).

	Mar 31, 2016	Mar 31, 2015	Mar 31, 2014	Mar 31, 2013	Mar 31, 2012	Mar 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to McKesson Corporation	2,258)	1,476)	1,263)	1,338)	1,403)	1,202)
Total assets	56,563)	53,870)	51,759)	34,786)	33,093)	30,886)
Profitability Ratio
ROA¹	3.99%	2.74%	2.44%	3.85%	4.24%	3.89%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to McKesson Corporation	2,322)	1,647)	1,279)	1,944)	1,568)	1,330)
Adjusted total assets	56,504)	53,794)	51,689)	34,749)	33,073)	30,814)
Profitability Ratio
Adjusted ROA²	4.11%	3.06%	2.47%	5.59%	4.74%	4.32%

2016 Calculations

¹ ROA = 100 × Net income attributable to McKesson Corporation ÷ Total assets
= 100 × 2,258 ÷ 56,563 = 3.99%

² Adjusted ROA = 100 × Adjusted net income attributable to McKesson Corporation ÷ Adjusted total assets
= 100 × 2,322 ÷ 56,504 = 4.11%

The financial performance from 2011 to 2016 is characterized by steady growth in absolute earnings and a significant expansion of the asset base, which resulted in notable fluctuations in asset utilization efficiency.

Net Income Trends: Both reported and adjusted net income exhibited an overall upward trajectory. Reported net income grew from 1,202 million USD in 2011 to 2,258 million USD in 2016. Adjusted net income showed more volatility, peaking at 1,944 million USD in 2013 before declining to 1,279 million USD in 2014, and subsequently recovering to reach a period high of 2,322 million USD in 2016.
Asset Base Expansion: A substantial increase in total assets occurred over the analyzed period, with reported assets rising from 30,886 million USD in 2011 to 56,563 million USD in 2016. A primary driver of change was the sharp increase observed between 2013 and 2014, where reported assets grew by approximately 48%, rising from 34,786 million USD to 51,759 million USD.
Return on Assets (ROA) Performance: The ROA metrics indicate a period of instability coinciding with asset growth. Reported ROA declined from a peak of 4.24% in 2012 to a minimum of 2.44% in 2014, reflecting the immediate impact of the expanded asset base on profitability ratios. By 2016, reported ROA recovered to 3.99%, suggesting an improvement in the company's ability to generate profit from its larger asset pool.
Analysis of Adjusted Metrics: Adjusted ROA consistently outperformed reported ROA across all six years. The variance was most pronounced in 2013, where adjusted ROA reached 5.59% compared to a reported 3.85%. The consistent gap between these two figures indicates that adjustments for specific income tax items or non-recurring charges provided a more favorable view of operational efficiency than the reported figures alone.

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