Reynolds American Inc. (NYSE:RAI)

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

Reynolds American Inc., effective income tax rate (EITR) reconciliation

		Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
	U.S. federal income tax rate	35.00%	35.00%	35.00%	35.00%	35.00%
	Effective tax rate	37.30%	49.00%	36.10%	37.30%	34.90%

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

The analysis of income tax metrics from 2012 to 2016 reveals a consistent statutory environment contrasted by a volatile effective tax burden. While the benchmark federal rate remained static, the actual tax rate paid by the entity fluctuated, frequently exceeding the statutory baseline.

Statutory Tax Rate Stability: The U.S. federal income tax rate remained unchanged at 35.00% for the entirety of the five-year period. This consistency provides a stable baseline for evaluating the drivers behind the variations in the effective tax rate.
Effective Tax Rate Volatility: The effective tax rate exhibited significant fluctuation, ranging from a low of 34.90% in 2012 to a peak of 49.00% in 2015. For four of the five years analyzed, the effective rate exceeded the statutory federal rate, indicating that various tax adjustments or non-deductible expenses increased the actual tax liability beyond the standard federal percentage.
Analysis of Period-over-Period Changes: Following a near-alignment with the statutory rate in 2012, the effective rate rose to 37.30% in 2013 and moderated slightly to 36.10% in 2014. A substantial spike occurred in 2015, where the rate climbed to 49.00%, representing a 12.90 percentage point increase from the previous year. By 2016, the rate reverted to 37.30%, returning to levels observed in 2013.

AI Ask an analyst for more

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

Reynolds American Inc., components of deferred tax assets and liabilities

US$ in millions

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Pension and other postretirement liabilities	759)	916)	823)	522)	726)
Tobacco settlement accruals	955)	1,088)	711)	677)	990)
Other accrued liabilities	169)	175)	127)	71)	62)
Other noncurrent liabilities	210)	283)	139)	150)	153)
Deferred tax assets	2,093)	2,462)	1,800)	1,420)	1,931)
Valuation allowance	—)	(8)	(37)	(36)	(33)
Deferred tax assets, less valuation allowance	2,093)	2,454)	1,763)	1,384)	1,898)
LIFO inventories	(257)	(266)	(150)	(156)	(158)
Property and equipment	(290)	(259)	(260)	(232)	(242)
Trademarks and other intangibles	(10,972)	(11,002)	(913)	(916)	(936)
Other	(181)	(131)	(111)	(120)	(115)
Deferred tax liabilities	(11,700)	(11,658)	(1,434)	(1,424)	(1,451)
Net deferred tax asset (liability)	(9,607)	(9,204)	329)	(40)	447)

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

The financial data reveals a significant structural shift in the deferred tax position between 2012 and 2016, transitioning from a predominantly net asset position to a substantial net liability position. This transformation is primarily driven by a dramatic increase in deferred tax liabilities associated with intangible assets starting in 2015.

Deferred Tax Asset Dynamics: Deferred tax assets exhibited volatility throughout the period, declining from 1,931 million US dollars in 2012 to 1,420 million US dollars in 2013, before peaking at 2,462 million US dollars in 2015 and settling at 2,093 million US dollars by 2016. The valuation allowance remained minimal and stable between 2012 and 2014, decreased significantly in 2015, and was not recorded in 2016, indicating a high level of confidence in the realizability of these assets.
Expansion of Deferred Tax Liabilities: Deferred tax liabilities remained relatively stable from 2012 to 2014, fluctuating around 1.4 billion US dollars. However, a massive increase occurred in 2015, with liabilities surging to 11,658 million US dollars and reaching 11,700 million US dollars by 2016. This escalation is almost entirely attributable to trademarks and other intangibles, which shifted from a liability of 913 million US dollars in 2014 to 11,002 million US dollars in 2015.
Net Deferred Tax Position: The net deferred tax position shifted from a net asset of 447 million US dollars in 2012 to a significant net liability of 9,607 million US dollars by 2016. The critical inflection point occurred between 2014 and 2015, where the net position moved from a positive 329 million US dollars to a negative 9,204 million US dollars, reflecting the impact of the intangible asset revaluation or acquisition.
Analysis of Temporary Difference Components: Pension and other postretirement liabilities showed fluctuation, peaking at 916 million US dollars in 2015. Tobacco settlement accruals followed a similar volatile pattern, reaching a high of 1,088 million US dollars in 2015 before declining to 955 million US dollars in 2016. Other noncurrent liabilities also saw a notable increase, nearly doubling from 139 million US dollars in 2014 to 283 million US dollars in 2015. Conversely, liabilities related to LIFO inventories and property and equipment showed a gradual, steady increase over the five-year period.

AI Ask an analyst for more

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

Reynolds American Inc., deferred tax assets and liabilities, classification

US$ in millions

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Current deferred tax assets	—)	1,032)	703)	606)	908)
Noncurrent deferred tax assets	—)	—)	9)	12)	—)
Noncurrent deferred tax liabilities	9,607)	10,236)	383)	658)	461)

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

The analysis of the deferred tax accounts reveals a significant shift in the company's tax position between 2012 and 2016, transitioning from a net asset position to a substantial net liability position. This shift is primarily characterized by an exponential increase in noncurrent deferred tax liabilities starting in 2015.

Current Deferred Tax Assets: Current deferred tax assets exhibited volatility throughout the period. A decrease from 908 million USD in 2012 to 606 million USD in 2013 was followed by a recovery trend, reaching a peak of 1,032 million USD by December 31, 2015. This growth between 2013 and 2015 suggests an increase in temporary differences that will be deductible in the short term.
Noncurrent Deferred Tax Assets: Noncurrent deferred tax assets remained immaterial and inconsistent. Values were recorded only in 2013 and 2014 at 12 million USD and 9 million USD, respectively, indicating that the company's long-term tax benefits are negligible compared to its current assets and liabilities.
Noncurrent Deferred Tax Liabilities: A dramatic escalation in noncurrent deferred tax liabilities is observed. Following relatively stable figures between 2012 and 2014, which ranged from 383 million USD to 658 million USD, the balance spiked to 10,236 million USD in 2015. This represents a more than 25-fold increase within a single fiscal year. The balance remained elevated at 9,607 million USD in 2016, signaling a permanent structural change in the company's long-term tax obligations.
Net Deferred Tax Position: The net position evolved from a net asset of 447 million USD in 2012 to a massive net liability exceeding 9 billion USD by 2015 and 2016. The magnitude of the increase in liabilities starting in 2015 suggests a major corporate event, such as a large-scale acquisition or a significant revaluation of assets, which created substantial taxable temporary differences to be settled in future periods.

AI Ask an analyst for more

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

Reynolds American Inc., Financial Data: Reported vs. Adjusted

Reynolds American Inc., adjustments to financial statements

US$ in millions

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Adjustment to Current Assets
Current assets (as reported)	4,238)	6,187)	3,323)	3,655)	4,812)
Less: Current deferred tax assets, net	—)	1,032)	703)	606)	908)
Current assets (adjusted)	4,238)	5,155)	2,620)	3,049)	3,904)
Adjustment to Total Assets
Total assets (as reported)	51,095)	53,224)	15,196)	15,402)	16,557)
Less: Current deferred tax assets, net	—)	1,032)	703)	606)	908)
Less: Noncurrent deferred tax assets, net	—)	—)	9)	12)	—)
Total assets (adjusted)	51,095)	52,192)	14,484)	14,784)	15,649)
Adjustment to Total Liabilities
Total liabilities (as reported)	29,384)	34,972)	10,674)	10,235)	11,300)
Less: Noncurrent deferred tax liabilities, net	9,607)	10,236)	383)	658)	461)
Total liabilities (adjusted)	19,777)	24,736)	10,291)	9,577)	10,839)
Adjustment to Shareholders’ Equity
Shareholders’ equity (as reported)	21,711)	18,252)	4,522)	5,167)	5,257)
Less: Net deferred tax assets (liabilities)	(9,607)	(9,204)	329)	(40)	447)
Shareholders’ equity (adjusted)	31,318)	27,456)	4,193)	5,207)	4,810)
Adjustment to Net Income
Net income (as reported)	6,073)	3,253)	1,470)	1,718)	1,272)
Add: Deferred income tax expense (benefit)	387)	(659)	(180)	312)	(44)
Net income (adjusted)	6,460)	2,594)	1,290)	2,030)	1,228)

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

An analysis of the financial adjustments reveals a significant shift in the balance sheet structure between 2012 and 2016, primarily driven by the treatment of deferred taxes. The most prominent change occurs in 2015, where a substantial increase is observed across total assets, total liabilities, and shareholders' equity, suggesting a major corporate event or accounting restructuring.

Asset Valuation Trends: Between 2012 and 2014, adjusted total assets remained consistently lower than reported total assets, indicating the removal of deferred tax assets. From 2012 to 2014, reported total assets stayed relatively stable, fluctuating between 15.2 billion and 16.6 billion. A sharp expansion occurred in 2015, with reported total assets rising to 53.2 billion. By December 31, 2016, the reported and adjusted total asset figures converged at 51.1 billion, indicating that deferred tax assets no longer influenced the total asset valuation.
Liability and Debt Adjustments: A widening gap between reported and adjusted total liabilities is evident in the latter part of the period. While liabilities were relatively aligned between 2012 and 2014, a significant divergence emerged in 2015 and 2016. In 2016, reported total liabilities were 29.4 billion, whereas adjusted liabilities were 19.8 billion. This indicates that a substantial portion of the reported liabilities consisted of deferred tax obligations, the removal of which significantly lowers the adjusted liability profile.
Impact on Shareholders' Equity: The removal of deferred tax liabilities has a profoundly positive effect on the adjusted equity position. In 2012, adjusted equity was lower than reported equity (4.8 billion versus 5.3 billion). However, by 2015 and 2016, this trend reversed sharply. In 2016, adjusted shareholders' equity reached 31.3 billion, representing a significant increase over the reported equity of 21.7 billion. This suggests that the tax adjustments uncover a much stronger underlying equity base than what is presented in the reported financial statements.
Net Income Volatility: Net income demonstrates a general upward trajectory, growing from reported values of 1.3 billion in 2012 to 6.1 billion in 2016. The adjustments for deferred taxes introduced variability in these figures. In 2013, adjusted net income was higher than reported (2.0 billion versus 1.7 billion), while in 2015, adjusted net income was lower (2.6 billion versus 3.3 billion). By 2016, the adjusted net income once again exceeded the reported figure, reaching 6.5 billion.

AI Ask an analyst for more

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

Reynolds American Inc., Financial Ratios: Reported vs. Adjusted

Reynolds American Inc., adjusted financial ratios

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
Current Ratio
Reported current ratio	0.85	1.17	0.94	1.19	1.28
Adjusted current ratio	0.85	0.97	0.74	0.99	1.04
Net Profit Margin
Reported net profit margin	36.05%	21.86%	12.15%	14.36%	10.40%
Adjusted net profit margin	38.35%	17.43%	10.66%	16.96%	10.04%
Total Asset Turnover
Reported total asset turnover	0.33	0.28	0.80	0.78	0.74
Adjusted total asset turnover	0.33	0.29	0.84	0.81	0.78
Financial Leverage
Reported financial leverage	2.35	2.92	3.36	2.98	3.15
Adjusted financial leverage	1.63	1.90	3.45	2.84	3.25
Return on Equity (ROE)
Reported ROE	27.97%	17.82%	32.51%	33.25%	24.20%
Adjusted ROE	20.63%	9.45%	30.77%	38.99%	25.53%
Return on Assets (ROA)
Reported ROA	11.89%	6.11%	9.67%	11.15%	7.68%
Adjusted ROA	12.64%	4.97%	8.91%	13.73%	7.85%

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

The removal of deferred taxes from financial ratios reveals significant divergences between reported and adjusted performance, particularly regarding solvency and return on equity. While profitability margins show a strong upward trajectory across both reporting methods, the adjusted figures highlight a more conservative liquidity position and a substantial reduction in financial leverage toward the end of the period.

Liquidity and Short-Term Solvency: The reported current ratio exhibited a general decline from 1.28 in 2012 to 0.85 in 2016. The adjusted current ratio consistently tracked below the reported figures between 2012 and 2015, reaching a low of 0.74 in 2014. By 2016, the reported and adjusted ratios converged at 0.85, suggesting that the impact of deferred taxes on short-term liquidity neutralized by the end of the analyzed period.
Profitability and Efficiency: A significant expansion in net profit margins is observed, with reported margins increasing from 10.40% in 2012 to 36.05% in 2016. Adjusted margins followed a similar growth pattern, ending higher at 38.35%. Conversely, total asset turnover remained relatively stable through 2014 before experiencing a sharp contraction in 2015 and 2016, falling from reported levels of 0.80 to 0.33. This indicates a decrease in asset efficiency that is consistent regardless of the tax adjustment.
Financial Leverage and Solvency: Financial leverage shows the most pronounced divergence following the removal of deferred taxes. While the reported leverage decreased from 3.15 in 2012 to 2.35 in 2016, the adjusted leverage plummeted more aggressively from 3.25 to 1.63. The substantial gap emerging in 2015 and 2016 suggests that deferred tax liabilities were contributing significantly to the reported leverage figures.
Returns on Investment: The Return on Equity (ROE) showed volatility, with reported figures peaking at 33.25% in 2013 before settling at 27.97% in 2016. Adjusted ROE, however, ended the period lower at 20.63%, with a notable dip to 9.45% in 2015. Return on Assets (ROA) followed a different pattern; the adjusted ROA generally remained higher than the reported ROA, rising from 7.85% in 2012 to 12.64% in 2016, indicating that the removal of deferred taxes improved the perceived efficiency of asset utilization in terms of net income.

AI Ask an analyst for more

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Current assets	4,238)	6,187)	3,323)	3,655)	4,812)
Current liabilities	4,985)	5,291)	3,544)	3,076)	3,769)
Liquidity Ratio
Current ratio¹	0.85	1.17	0.94	1.19	1.28
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted current assets	4,238)	5,155)	2,620)	3,049)	3,904)
Current liabilities	4,985)	5,291)	3,544)	3,076)	3,769)
Liquidity Ratio
Adjusted current ratio²	0.85	0.97	0.74	0.99	1.04

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 4,238 ÷ 4,985 = 0.85

² Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 4,238 ÷ 4,985 = 0.85

An analysis of the liquidity position from 2012 to 2016 reveals a volatile trend in both reported and adjusted current assets, with a corresponding impact on short-term solvency ratios. There is a consistent divergence between reported and adjusted figures for the majority of the period, suggesting that specific asset adjustments were necessary to provide a more conservative view of the company's liquidity.

Current Asset Trends: Reported current assets experienced a decline from 4,812 million US dollars in 2012 to a low of 3,323 million US dollars in 2014, followed by a significant spike to 6,187 million US dollars in 2015, before retreating to 4,238 million US dollars by 2016. Adjusted current assets followed a similar trajectory but remained lower than reported figures between 2012 and 2015, indicating the exclusion of certain asset components from the adjusted calculation.
Current Ratio Performance: The reported current ratio exhibited a general downward trend, starting at 1.28 in 2012 and ending at 0.85 in 2016. This ratio fell below the 1.0 threshold in 2014 and 2016, signifying periods where current liabilities exceeded current assets. The adjusted current ratio provides a more stringent measure of liquidity, remaining below 1.0 for four of the five years analyzed, with a nadir of 0.74 in 2014.
Comparison of Reported and Adjusted Metrics: A notable gap existed between reported and adjusted ratios from 2012 to 2015, with the adjusted ratio consistently understating the liquidity position compared to the reported figure. This gap was most pronounced in 2014, where the adjusted ratio was 0.20 points lower than the reported ratio. However, by December 31, 2016, the reported and adjusted current assets and ratios converged exactly at 4,238 million US dollars and 0.85, respectively, indicating that no adjustments were required for the final year of the period.

AI Ask an analyst for more

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Net income	6,073)	3,253)	1,470)	1,718)	1,272)
Net sales, includes excise taxes	16,846)	14,884)	12,096)	11,966)	12,227)
Profitability Ratio
Net profit margin¹	36.05%	21.86%	12.15%	14.36%	10.40%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income	6,460)	2,594)	1,290)	2,030)	1,228)
Net sales, includes excise taxes	16,846)	14,884)	12,096)	11,966)	12,227)
Profitability Ratio
Adjusted net profit margin²	38.35%	17.43%	10.66%	16.96%	10.04%

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ Net profit margin = 100 × Net income ÷ Net sales, includes excise taxes
= 100 × 6,073 ÷ 16,846 = 36.05%

² Adjusted net profit margin = 100 × Adjusted net income ÷ Net sales, includes excise taxes
= 100 × 6,460 ÷ 16,846 = 38.35%

Between 2012 and 2016, a significant upward trajectory in profitability was observed, characterized by substantial growth in both absolute net income and profit margins. While there was a temporary contraction in 2014, the subsequent recovery led to a sharp expansion in margins by the end of the period.

Net Income Trends: Reported net income increased from 1,272 million USD in 2012 to 6,073 million USD in 2016. Adjusted net income followed a similar progression, starting at 1,228 million USD in 2012 and reaching 6,460 million USD by 2016. Both metrics experienced a dip in 2014 before entering a phase of rapid growth through 2016.
Net Profit Margin Analysis: The reported net profit margin rose from 10.40% in 2012 to 36.05% in 2016. The adjusted net profit margin showed more volatility but a stronger overall increase, climbing from 10.04% in 2012 to 38.35% in 2016. A notable decline occurred in 2014, where the adjusted margin fell to 10.66% from a 2013 peak of 16.96%.
Comparison of Reported and Adjusted Metrics: The variance between reported and adjusted figures indicates the impact of non-recurring items on the bottom line. In 2013, the adjusted net profit margin was 2.6 percentage points higher than the reported margin. By 2016, the adjusted margin exceeded the reported margin by 2.3 percentage points, reflecting a consistent trend of adjusted performance outpacing reported results in the latter half of the observed period.

AI Ask an analyst for more

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Net sales, includes excise taxes	16,846)	14,884)	12,096)	11,966)	12,227)
Total assets	51,095)	53,224)	15,196)	15,402)	16,557)
Activity Ratio
Total asset turnover¹	0.33	0.28	0.80	0.78	0.74
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Net sales, includes excise taxes	16,846)	14,884)	12,096)	11,966)	12,227)
Adjusted total assets	51,095)	52,192)	14,484)	14,784)	15,649)
Activity Ratio
Adjusted total asset turnover²	0.33	0.29	0.84	0.81	0.78

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ Total asset turnover = Net sales, includes excise taxes ÷ Total assets
= 16,846 ÷ 51,095 = 0.33

² Adjusted total asset turnover = Net sales, includes excise taxes ÷ Adjusted total assets
= 16,846 ÷ 51,095 = 0.33

The financial period between 2012 and 2016 is characterized by a significant expansion of the asset base and a corresponding shift in asset utilization efficiency. While the first three years showed stable asset levels and improving turnover, a substantial increase in assets in 2015 led to a sharp decline in the efficiency ratios.

Asset Base Expansion: Reported total assets remained relatively stable from 2012 to 2014, moving from US$ 16,557 million to US$ 15,196 million. A pivotal increase occurred in 2015, where reported assets jumped to US$ 53,224 million, representing a more than three-fold increase in the asset base. This elevated level persisted into 2016, closing at US$ 51,095 million. Adjusted total assets followed a nearly identical trajectory, peaking in 2015 at US$ 52,192 million.
Asset Turnover Trends: Between 2012 and 2014, a steady upward trend in asset efficiency is observed. The adjusted total asset turnover ratio increased annually from 0.78 to 0.84. However, this trend reversed sharply in 2015, with the ratio falling to 0.29, a direct result of the massive increase in total assets. A partial recovery was noted in 2016, as the adjusted total asset turnover rose to 0.33.
Reported versus Adjusted Metrics: A consistent variance existed between reported and adjusted turnover ratios from 2012 to 2015, with the adjusted ratios consistently reflecting higher efficiency. This discrepancy narrowed over time, culminating in 2016 when both the reported and adjusted total asset turnover ratios converged at 0.33, coinciding with the point where reported and adjusted total assets became identical at US$ 51,095 million.

AI Ask an analyst for more

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Total assets	51,095)	53,224)	15,196)	15,402)	16,557)
Shareholders’ equity	21,711)	18,252)	4,522)	5,167)	5,257)
Solvency Ratio
Financial leverage¹	2.35	2.92	3.36	2.98	3.15
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets	51,095)	52,192)	14,484)	14,784)	15,649)
Adjusted shareholders’ equity	31,318)	27,456)	4,193)	5,207)	4,810)
Solvency Ratio
Adjusted financial leverage²	1.63	1.90	3.45	2.84	3.25

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ Financial leverage = Total assets ÷ Shareholders’ equity
= 51,095 ÷ 21,711 = 2.35

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted shareholders’ equity
= 51,095 ÷ 31,318 = 1.63

Between 2012 and 2016, the capital structure underwent a significant transformation characterized by a massive expansion of the balance sheet and a corresponding reduction in financial leverage.

Asset and Equity Expansion: Reported total assets remained relatively stable between 2012 and 2014, fluctuating around 15 to 16 billion USD. A substantial increase occurred in 2015, where assets rose to 53.2 billion USD, before slightly moderating to 51.1 billion USD in 2016. Shareholders' equity followed a similar trajectory, increasing from 4.5 billion USD in 2014 to 21.7 billion USD by 2016 on a reported basis.
Impact of Adjustments on Equity: A widening divergence is observed between reported and adjusted shareholders' equity starting in 2015. While reported equity stood at 18.3 billion USD in 2015, adjusted equity was significantly higher at 27.5 billion USD. This gap expanded further by 2016, with adjusted equity reaching 31.3 billion USD compared to 21.7 billion USD reported. This indicates that tax-related adjustments had a substantial positive impact on the net asset position during the latter two years of the period.
Financial Leverage Analysis: Financial leverage ratios exhibited a downward trend following 2014. Reported financial leverage decreased from 3.36 in 2014 to 2.35 in 2016. The adjusted financial leverage showed a more pronounced decline, falling from 3.45 in 2014 to 1.63 in 2016. The sharp reduction in adjusted leverage is primarily driven by the significant increase in adjusted shareholders' equity relative to the growth in total assets.

AI Ask an analyst for more

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Net income	6,073)	3,253)	1,470)	1,718)	1,272)
Shareholders’ equity	21,711)	18,252)	4,522)	5,167)	5,257)
Profitability Ratio
ROE¹	27.97%	17.82%	32.51%	33.25%	24.20%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income	6,460)	2,594)	1,290)	2,030)	1,228)
Adjusted shareholders’ equity	31,318)	27,456)	4,193)	5,207)	4,810)
Profitability Ratio
Adjusted ROE²	20.63%	9.45%	30.77%	38.99%	25.53%

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ ROE = 100 × Net income ÷ Shareholders’ equity
= 100 × 6,073 ÷ 21,711 = 27.97%

² Adjusted ROE = 100 × Adjusted net income ÷ Adjusted shareholders’ equity
= 100 × 6,460 ÷ 31,318 = 20.63%

An analysis of the financial performance from 2012 to 2016 reveals a period of substantial growth in net earnings accompanied by a significant expansion of the capital base beginning in 2015. This shift in the balance sheet structure had a pronounced effect on the return on equity metrics.

Net Income Trends: Both reported and adjusted net income exhibited a strong upward trajectory over the five-year period. Reported net income grew from 1,272 million US$ in 2012 to 6,073 million US$ in 2016. The most aggressive growth phase occurred between 2014 and 2016, during which reported net income increased from 1,470 million US$ to 6,073 million US$. Adjusted net income followed a similar pattern, peaking at 6,460 million US$ in 2016.
Shareholders' Equity Expansion: Shareholders' equity remained relatively stable between 2012 and 2014, with reported values fluctuating between 4,522 million US$ and 5,257 million US$. A sharp inflection point occurred in 2015, where reported equity surged to 18,252 million US$, further increasing to 21,711 million US$ by 2016. This trend was even more pronounced in the adjusted equity figures, which climbed from 4,193 million US$ in 2014 to 31,318 million US$ in 2016.
Return on Equity (ROE) Analysis: The expansion of the equity base created a downward pressure on ROE despite increasing net income. Reported ROE peaked in 2013 at 33.25% and reached a period low of 17.82% in 2015, coinciding with the sudden increase in shareholders' equity. While Reported ROE recovered to 27.97% in 2016, Adjusted ROE showed greater volatility and a more severe decline, dropping from a peak of 38.99% in 2013 to 9.45% in 2015. The Adjusted ROE for 2016 stood at 20.63%, remaining significantly lower than the 2013 levels due to the substantially larger adjusted equity denominator.

AI Ask an analyst for more

Hi, I’m an AI-powered financial analyst at Stock Analysis on Net.
Without a user account, I tend to respond rather slowly.

How can I help you?

	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
As Reported
Selected Financial Data (US$ in millions)
Net income	6,073)	3,253)	1,470)	1,718)	1,272)
Total assets	51,095)	53,224)	15,196)	15,402)	16,557)
Profitability Ratio
ROA¹	11.89%	6.11%	9.67%	11.15%	7.68%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income	6,460)	2,594)	1,290)	2,030)	1,228)
Adjusted total assets	51,095)	52,192)	14,484)	14,784)	15,649)
Profitability Ratio
Adjusted ROA²	12.64%	4.97%	8.91%	13.73%	7.85%

Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).

2016 Calculations

¹ ROA = 100 × Net income ÷ Total assets
= 100 × 6,073 ÷ 51,095 = 11.89%

² Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × 6,460 ÷ 51,095 = 12.64%

The financial performance between 2012 and 2016 is characterized by a significant expansion of the asset base and a subsequent recovery in asset utilization efficiency. While net income showed a strong upward trajectory toward the end of the period, the Return on Assets (ROA) experienced volatility due to a substantial increase in total assets during 2015.

Net Income Trends: Adjusted net income exhibited a general growth trend, rising from US$ 1,228 million in 2012 to US$ 6,460 million in 2016. A notable acceleration in profitability occurred between 2014 and 2016, during which adjusted net income increased from US$ 1,290 million to US$ 6,460 million, representing a substantial expansion of the bottom line.
Asset Base Expansion: Total assets remained relatively stable from 2012 through 2014, with adjusted total assets fluctuating between US$ 14,484 million and US$ 15,649 million. A sharp increase is observed in 2015, where adjusted total assets rose to US$ 52,192 million, followed by a slight decrease to US$ 51,095 million in 2016, suggesting a major capital investment or acquisition event during the 2015 fiscal year.
Adjusted Return on Assets (ROA) Analysis: The Adjusted ROA demonstrated significant volatility, reaching a peak of 13.73% in 2013 before declining to 8.91% in 2014 and hitting a period low of 4.97% in 2015. The 2015 dip is directly attributable to the surge in total assets, which outpaced the growth in net income for that year. However, a strong recovery is evident in 2016, as the Adjusted ROA climbed to 12.64%, indicating a successful improvement in the efficiency of the expanded asset base in generating earnings.
Comparison of Reported and Adjusted Metrics: Discrepancies between reported and adjusted figures are most prominent in the ROA calculations. The Adjusted ROA generally showed higher peaks and lower troughs than the Reported ROA, suggesting that one-time items or non-recurring adjustments had a magnifying effect on the perceived efficiency of asset utilization throughout the five-year period.

AI Ask an analyst for more