ServiceNow Inc. (NYSE:NOW)

The analysis of the annual current and deferred income tax expenses reveals distinct trends over the five-year period ending December 31, 2024.

Current Provision

The current provision demonstrates a generally increasing trend. From 53 million US dollars in 2020 and 2021, the amount remains stable before rising slightly to 59 million in 2022. Notably, there is a significant increase in 2023 to 134 million, followed by a further substantial rise to 215 million in 2024. This pattern suggests a growing tax expense recognized within the current period possibly due to increased taxable income or changes in tax rates or regulations affecting the company's current tax liabilities.

Deferred Provision

The deferred provision exhibits considerable volatility over the observed years. Initially, the amounts are negative, indicating deferred tax benefits (23 million in 2020 and increasing to 34 million in 2021). In 2022, the deferred provision turns positive to 15 million, indicating deferred tax expense. However, in 2023 there is a dramatic shift to a large deferred tax benefit of 857 million, which is a substantial and uncommon movement compared to prior years. The following year, 2024, records a deferred tax expense of 98 million, reverting back to a positive value. These fluctuations might reflect significant changes in deferred tax assets and liabilities, possibly due to adjustments in tax legislation, changes in estimates, tax credits, or recognition of deferred tax assets.

Total Provision for Income Taxes

The overall provision for income taxes, encompassing both current and deferred provisions, shows pronounced variability. Starting from 31 million in 2020, it declines to 19 million in 2021, increases to 74 million in 2022, then sharply drops to a large tax benefit of 723 million in 2023, before increasing again to 313 million in 2024. This extreme fluctuation in 2023 closely aligns with the significant deferred tax benefit recorded in the same year and indicates a notable tax event or adjustment that dramatically decreased the overall tax expense in that period. The restoration to a positive provision in 2024 suggests normalization or reversal of some of these effects.

In summary, the current tax expense shows a steady increase, reflecting rising current tax liabilities. Conversely, the deferred tax provision is highly volatile and appears to be the primary driver of the large swings in total income tax expense from year to year. The exceptional deferred tax benefit in 2023 and the corresponding total tax benefit indicate significant accounting or tax-related adjustments that merit further investigation to understand underlying causes and implications for future periods.

U.S. Federal Statutory Income Tax Rate

The statutory tax rate remained constant at 21% throughout the entire five-year period, indicating no regulatory changes affecting the company's federal income tax obligations.

Effective Income Tax Rate

The effective tax rate exhibits significant variability over the years. Starting at 20.57% in 2020, it sharply decreased to 7.63% in 2021, demonstrating a possible impact of tax planning strategies or one-time adjustments that reduced tax expenses relative to earnings.

In 2022, the rate increased to 18.55%, approaching the statutory rate, suggesting a normalization or reduction in earlier tax benefits.

The rate turned sharply negative in 2023, reaching -71.73%. This substantial negative value likely indicates a tax benefit, such as tax credits, deferred tax asset realizations, or tax refunds exceeding tax expenses, which may have been driven by unusual or non-recurring items.

By 2024, the effective rate returned to a positive value of 18.01%, close to the statutory rate, implying that the unusual tax impacts seen in the prior year were not sustained.

Overall, the effective income tax rate shows pronounced fluctuations, with a general tendency toward convergence with the statutory rate in the earlier and later years, but marked by exceptional volatility in the middle period.

The data reveals notable trends in several key financial metrics over the five-year period. Net operating loss carryforwards exhibited a consistent decrease, falling from 882 million USD at the end of 2020 to 138 million USD by the end of 2024, indicating a likely utilization of losses or changes in tax positions. Conversely, credit carryforwards generally increased, rising from 236 million USD in 2020 to a peak of 476 million USD in 2023, followed by a slight decline to 458 million USD in 2024. This suggests an accumulation of credits available for future use, with a minor reduction towards the end of the period.

Lease liability

Observed a steady increase from 115 million USD in 2020 to 184 million USD in 2023, then decreased to 171 million USD in 2024, reflecting changes in lease obligations likely related to new leases or lease terminations.

Capitalized research and development

Data available from 2022 onwards shows a rising trend from 262 million USD to 434 million USD in 2024, indicating increased capitalization of R&D expenditures, which may reflect growth in development activities or changes in accounting treatment.

Depreciation and amortization

From 2020 through 2024, the initially reported expense decreased from 636 million USD to 514 million USD. Additional entries for depreciation and amortization from 2023 onwards (noted as negative numbers) suggest possible adjustments or reclassifications, with values of -90 million USD and -113 million USD in 2023 and 2024, respectively.

Other line items

The “Other” category showed an increase from 103 million USD in 2020 to 168 million USD in 2024. However, an alternate "Other" line item with negative values fluctuated notably, reaching a low of -129 million USD in 2022 before improving somewhat in following years.

Deferred tax assets experienced growth until 2021, peaking at 2244 million USD, then gradually declined to 1883 million USD by 2024. The valuation allowance, which offsets deferred tax assets, reversed its trend from an increasing negative balance of -1326 million USD in 2021 to a significantly reduced negative balance of -196 million USD in 2023 and -220 million USD in 2024. This reduction in valuation allowance enhanced the net realizable value of deferred tax assets.

Consequently, deferred tax assets less valuation allowance showed a substantial increase after 2022, doubling from 917 million USD in 2022 to a peak of 1764 million USD in 2023, followed by a slight decrease to 1663 million USD in 2024. These movements likely reflect improved expectations regarding the realization of deferred tax assets.

Right of use asset

Displayed a steady negative balance increasing in magnitude from -106 million USD in 2020 to approximately -165 million USD in 2023, then slightly less negative at -150 million USD in 2024, which aligns with adjustments related to lease accounting.

Deferred tax liabilities

Consistently increased in absolute value, from -176 million USD in 2020 to -324 million USD in 2024, indicating greater obligations or timing differences resulting in deferred taxes payable.

Net deferred tax assets (liabilities)

After fluctuating slightly around the 600-700 million USD levels between 2020 and 2022, there was a marked increase to 1468 million USD in 2023, with a modest decrease to 1339 million USD in 2024, reflecting the combined effect of changes in deferred tax assets, liabilities, and valuation allowances.

Overall, the financial data suggests a pattern of decreasing net operating loss carryforwards alongside increasing credit carryforwards and capitalized research and development expenses, signifying a shift toward higher R&D activity and utilization of past losses. The adjustments in deferred tax assets and valuation allowances point toward improving expectations for future tax benefits. Lease-related balances showed moderate increases with some pullbacks toward the end of the period. Depreciation and amortization trends indicate potential accounting adjustments that merit further review.

The financial data reveals notable trends in the deferred tax assets and liabilities over a five-year period.

Deferred Tax Assets

The deferred tax assets show a fluctuating yet overall increasing trend. Initially, the values indicated a slight increase from 673 million USD in 2020 to 692 million USD in 2021. This increase was followed by a decline to 636 million USD in 2022. However, in 2023, the deferred tax assets saw a significant jump to 1508 million USD, more than doubling compared to the previous year. By 2024, there was a minor decline to 1385 million USD but the value remained substantially higher than in earlier years. This pattern suggests significant changes in the company's tax position or adjustments in temporary differences impacting deferred taxes in the latter years.

Deferred Tax Liabilities

The deferred tax liabilities exhibited a gradual increase across the period. Beginning from a relatively low base of 7 million USD in 2020, the liabilities rose steadily each year to reach 46 million USD by 2024. Although the scale is much smaller compared to deferred tax assets, the upward trend indicates growing future tax obligations potentially due to temporary differences that will reverse in upcoming periods.

Overall, the company's deferred tax assets have expanded significantly, particularly in 2023, which may reflect strategic tax planning or changes in accounting estimates related to future tax benefits. Meanwhile, deferred tax liabilities have increased steadily but remain comparatively modest. The evolving balance between these deferred tax accounts provides insights into the company's tax profile and future tax cash flows.

Total Assets

Total assets, both reported and adjusted, show a consistent upward trend from 2020 to 2024. Reported total assets increase from $8,715 million in 2020 to $20,383 million in 2024, nearly a 134% increase. Adjusted total assets follow a similar path, rising from $8,042 million to $18,998 million over the same period. The gap between reported and adjusted assets widens slightly but remains relatively stable, indicating the impact of deferred income tax adjustments is consistent over time.

Total Liabilities

Total liabilities also increase steadily during the five-year period. Reported liabilities grow from $5,881 million to $10,774 million, representing an 83% rise. Adjusted liabilities mirror this increase, moving from $5,873 million to $10,728 million. The minimal difference between reported and adjusted liabilities suggests deferred tax adjustments have a marginal effect on the liability figures.

Stockholders’ Equity

Reported stockholders’ equity shows a strong upward trajectory, increasing from $2,834 million in 2020 to $9,609 million in 2024, more than tripling in this span. Adjusted equity grows from $2,169 million to $8,270 million, indicating a substantial rise as well but consistently remaining lower than reported equity by a significant margin. The divergence between adjusted and reported equity highlights the effect of deferred tax accounting reducing the equity base.

Net Income

Reported net income reveals substantial volatility and growth. It starts at $119 million in 2020, dips slightly to $230 million in 2021, then increases to a peak of $1,731 million in 2023 before dropping to $1,425 million in 2024. Adjusted net income reflects a different pattern; it rises from $96 million in 2020 to $340 million in 2022, then decreases to $874 million in 2023 before increasing again to $1,523 million in 2024. This variation illustrates that the adjustments for deferred income taxes significantly impact the company’s profitability figures, smoothing some fluctuations seen in the reported net income.

General Insights

The company exhibits strong growth in key financial metrics over the five years analyzed. Assets and equity more than double, signifying aggressive expansion or asset accumulation. Liabilities also rise, but at a slower percentage rate, implying a potentially strengthening financial structure. The persistent differences between reported and adjusted figures emphasize the relevance of deferred income tax adjustments, particularly affecting equity and net income. The adjusted data provides a more conservative perspective, likely reflecting the timing differences in recognizing tax impacts on earnings and net worth.

Net Profit Margin

The reported net profit margin shows a generally increasing trend from 2.62% in 2020 to a peak of 19.3% in 2023, followed by a decrease to 12.97% in 2024. The adjusted net profit margin similarly rises from 2.12% in 2020 to 4.69% in 2022, experiences a notable increase to 9.74% in 2023, and further improves to 13.87% in 2024. This suggests that adjustments related to income taxes yield a higher and smoother profitability measure, especially in the latter years.

Total Asset Turnover

The reported total asset turnover remains relatively stable over the period, fluctuating slightly between 0.52 and 0.55. The adjusted total asset turnover consistently exceeds the reported figures, ranging from 0.56 to 0.58, indicating a marginally better asset utilization after adjustments. However, overall asset turnover shows minimal change, reflecting steady efficiency in asset use.

Financial Leverage

Both reported and adjusted financial leverage demonstrate a declining pattern, with reported leverage decreasing from 3.07 in 2020 to 2.12 in 2024, and adjusted leverage from 3.71 to 2.3 in the same period. This decreasing leverage trend indicates a reduction in reliance on debt financing or an increase in equity, which may reduce financial risk over time. The adjusted figures are consistently higher, suggesting that income tax-related adjustments affect leverage measurements.

Return on Equity (ROE)

Reported ROE increases from 4.18% in 2020 to 6.46% in 2022, then surges sharply to 22.69% in 2023 before falling to 14.83% in 2024. The adjusted ROE follows a steadier upward trend, rising from 4.42% in 2020 to 7.72% in 2022, then climbing to 14.19% in 2023 and further to 18.42% in 2024. The adjusted ROE, which incorporates the tax adjustments, exhibits less volatility and indicates continuing improvement in shareholder returns.

Return on Assets (ROA)

Reported ROA shows growth from 1.36% in 2020 to 2.44% in 2022, then escalates significantly to 9.96% in 2023 before declining to 6.99% in 2024. Adjusted ROA is consistently lower than reported initially but increases steadily from 1.19% in 2020 to 2.68% in 2022, followed by moderate growth to 5.5% in 2023 and further improvement to 8.02% in 2024. The adjusted ROA presents a smoother trajectory and highlights effective asset utilization after adjustments.

Overall Insights

The trends reveal a pattern of increased profitability, improved return metrics, and decreasing financial leverage over the studied period. Adjusted figures tend to be higher for net profit margin and return on equity, but lower or smoother for asset turnover and return on assets, reflecting the impact of deferred and annual income tax adjustments on financial performance measures. The peak in reported profitability and ROE in 2023, followed by a decline in 2024, contrasts with the more stable improvements seen in adjusted results and may suggest non-recurring factors affecting reported outcomes in 2023.

Net Income Trends

Reported net income demonstrates an overall increasing trend from 119 million US dollars in 2020 to a peak of 1,731 million in 2023, followed by a decrease to 1,425 million in 2024. Adjusted net income presents a similar upward movement but with a different pattern, starting at 96 million in 2020, rising steadily to 340 million by 2022, then sharply increasing to 874 million in 2023, and further to 1,523 million in 2024. This suggests that while the reported figures experienced a peak and subsequent decline, the adjusted figures show a consistent growth trajectory, especially significant beyond 2022.

Net Profit Margin Analysis

The reported net profit margin grows steadily from 2.62% in 2020 to 4.49% in 2022, then surges dramatically to 19.3% in 2023 before declining to 12.97% in 2024. In contrast, the adjusted net profit margin also increases from 2.12% in 2020 to 4.69% in 2022 but shows a more moderate rise to 9.74% in 2023 and then a further increase to 13.87% in 2024. This indicates that the adjusted margins provide a smoother growth pattern, without the pronounced spike and drop seen in the reported margins.

Comparative Insights

The disparity between reported and adjusted figures, both in net income and profit margin, highlights adjustments made for certain tax and income effects. The reported data shows more volatility, especially with the marked peak in 2023, while the adjusted data suggests more sustainable profitability improvements. The adjusted net income and margin surpass the reported values in 2024, which could be indicative of favorable deferred tax adjustments or other non-recurring items affecting reported numbers.

Overall Interpretation

The financial performance over the reviewed timeframe reveals strong growth in profitability, notably in 2023, with a subsequent moderation in reported figures but continued improvement in adjusted indicators through 2024. This pattern suggests effective underlying operational gains when normalized for tax-related and non-recurring effects, reflecting positively on the company's ongoing financial health and earning capacity.

The financial data reveals consistent growth in both reported and adjusted total assets over the observed period. Reported total assets increased steadily from 8,715 million US dollars in 2020 to 20,383 million US dollars in 2024. Adjusted total assets followed a similar upward trajectory, rising from 8,042 million US dollars in 2020 to 18,998 million US dollars in 2024. This indicates a sustained expansion in the company's asset base after accounting for adjustments related to income taxes.

Regarding asset efficiency, reported total asset turnover exhibited slight fluctuations but remained relatively stable, starting at 0.52 in 2020, peaking at 0.55 in 2021, and then fluctuating between 0.52 and 0.54 through 2024. Adjusted total asset turnover consistently remained higher than the reported figures, ranging from 0.56 in 2020 to 0.58 in 2024. This suggests that, when adjusting for deferred income tax effects, the company maintained a marginally higher efficiency in generating revenue from its asset base.

Overall, the data indicates strong asset growth accompanied by stable operational efficiency in asset utilization. The consistent discrepancy between reported and adjusted figures emphasizes the impact of income tax adjustments on the company's financial metrics, with adjusted figures showing somewhat more favorable efficiency ratios. The trends imply effective management of assets and sustained capacity to generate revenue in relation to the asset base over the five-year period.

Total Assets

The reported total assets exhibit a consistent upward trend over the observed five-year period, increasing from 8,715 million USD at the end of 2020 to 20,383 million USD by the close of 2024. Similarly, the adjusted total assets follow the same rising trajectory, growing from 8,042 million USD to 18,998 million USD during the same timeframe. The difference between reported and adjusted total assets narrows slightly over time, indicating adjustments related to income taxes may be becoming less significant in the context of total asset value.

Stockholders' Equity

Reported stockholders’ equity demonstrates significant growth, rising steadily from 2,834 million USD at the end of 2020 to 9,609 million USD in 2024. Adjusted stockholders’ equity mirrors this increasing trend, starting at 2,169 million USD and reaching 8,270 million USD by 2024. The growth in equity is robust, reflecting consistent capitalization improvements. The gap between reported and adjusted stockholders' equity remains relatively stable, suggesting the deferred income tax adjustments impact equity values consistently over the analyzed period.

Financial Leverage Ratios

Reported financial leverage ratios show a declining trend, decreasing from 3.07 in 2020 to 2.12 by 2024. This decline indicates a reduction in the degree of leverage, implying an increase in equity relative to total assets. Adjusted financial leverage ratios, starting higher at 3.71 in 2020, also decline to 2.30 in 2024. Although the adjusted leverage ratios remain higher than the reported ones, both metrics reflect a decreasing reliance on debt financing over time. The steady decline in financial leverage suggests improving financial stability and potentially lower financial risk.

Overall Insights

The financial data reveals a consistent pattern of growth in total assets and stockholders' equity, alongside a progressive reduction in financial leverage. The adjustments related to deferred income taxes moderately affect the reported figures but do not change the overall positive trajectory. The declining financial leverage points to a strengthening balance sheet, with equity increasing faster than liabilities. This trend could indicate improved solvency and a cautious approach to leveraging growth.

Net Income Trends

Reported net income demonstrates a consistent upward trajectory from 2020 through 2023, increasing from 119 million US dollars to a peak of 1731 million US dollars. However, in 2024, there is a noticeable decline to 1425 million US dollars. Adjusted net income follows a similar trend, rising steadily from 96 million US dollars in 2020 to 874 million US dollars in 2023, and then surging to 1523 million US dollars in 2024, surpassing the reported net income for the same year. This indicates adjustments are significantly affecting net income figures in recent years, especially in 2024.

Stockholders' Equity Trends

Stockholders’ equity, both reported and adjusted, shows continuous growth across all years. Reported stockholders’ equity increases from 2834 million US dollars in 2020 to 9609 million US dollars in 2024. Adjusted stockholders’ equity also rises steadily from 2169 million US dollars in 2020 to 8270 million US dollars in 2024. The adjusted figures consistently remain below reported equity, suggesting that deferred income tax adjustments reduce the equity base but both measures reflect strong capital growth over the period.

Return on Equity (ROE) Analysis

Reported ROE exhibits a gradual increase from 4.18% in 2020 to 6.46% in 2022, followed by a sharp rise to 22.69% in 2023 and a decline to 14.83% in 2024. Adjusted ROE, which accounts for deferred tax adjustments, shows a smoother upward trend from 4.42% in 2020 to 7.72% in 2022, then a rise to 14.19% in 2023, and further growth to 18.42% in 2024. This pattern indicates that while reported ROE was significantly impacted by exceptional factors in 2023, adjusted ROE suggests more stable and sustainable profitability improvements with strong performance continuing into 2024.

Overall Insights

The data reflects significant growth in profitability and equity base over the five-year period. Adjusted financial measures tend to moderate the reported figures, providing a more conservative view that emphasizes sustainability. The peak in reported net income and ROE in 2023 combined with subsequent adjustments implies that 2023 included one-time or non-recurring items that affected profitability metrics. The increase in adjusted net income and ROE in 2024 suggests improving core business performance. Continuous equity growth supports a strengthening financial foundation.

The financial data reveals notable trends in both reported and adjusted metrics over the five-year period.

Net Income

Reported net income exhibits a generally positive trajectory, increasing from $119 million at the end of 2020 to a peak of $1,731 million in 2023, before declining to $1,425 million in 2024. Adjusted net income also shows growth from $96 million in 2020 to $340 million in 2022, followed by a significant jump to $874 million in 2023 and further increase to $1,523 million in 2024. This suggests that while both reported and adjusted net incomes are improving substantially, the adjusted figures indicate a more consistent and accelerated growth path in recent years, especially from 2022 onward.

Total Assets

Reported total assets grow steadily from $8,715 million in 2020 to $20,383 million in 2024. Adjusted total assets follow a similar upward trend but remain consistently lower than the reported figures, increasing from $8,042 million to $18,998 million over the same period. This divergence reflects the impact of adjustments likely related to deferred taxes or other accounting considerations, resulting in a more conservative asset base when adjusted.

Return on Assets (ROA)

Reported ROA starts at 1.36% in 2020 and rises gradually to 2.44% in 2022, then sharply increases to 9.96% in 2023 before declining to 6.99% in 2024. Adjusted ROA shows a slightly different pattern, starting at 1.19% in 2020 and increasing steadily to 2.68% in 2022, with a moderate increase to 5.5% in 2023 and further growth to 8.02% in 2024. The marked spike in reported ROA in 2023 suggests a temporary boost in income relative to assets not fully reflected in the adjusted figures. However, the adjusted ROA in 2024 surpasses the reported ROA, indicating improved asset efficiency after removing certain accounting effects.

Overall, the company demonstrates strong growth in income and asset base, with adjusted figures providing a more moderated and arguably clearer picture of profitability and asset utilization. The fluctuations in ROA, particularly the divergence between reported and adjusted values in 2023 and 2024, highlight the importance of considering adjusted financial metrics to assess true operational performance.