ServiceNow Inc. (NYSE:NOW)

The provision for income taxes exhibits significant fluctuations over the five-year period. A review of the components reveals substantial shifts in both current and deferred tax provisions, driving the overall changes.

Current Provision

The current provision demonstrates a consistent upward trend, increasing from US$53 million in 2021 to US$262 million in 2025. This suggests increasing taxable income over the period. The growth is relatively steady, with incremental increases each year.

Deferred Provision

The deferred provision is characterized by considerable volatility. Beginning at a benefit of US$34 million in 2021, it shifted to a provision of US$15 million in 2022. A substantial deferred tax expense of US$857 million was recorded in 2023, followed by a benefit of US$98 million in 2024 and a provision of US$251 million in 2025. These fluctuations likely stem from changes in temporary differences between book and tax bases of assets and liabilities, or changes in tax laws and rates impacting deferred tax asset/liability valuations.

Total Provision for (Benefit from) Income Taxes

The overall provision for (benefit from) income taxes mirrors the volatility of the deferred provision. A modest benefit of US$19 million was recorded in 2021, increasing to US$74 million in 2022. However, 2023 saw a significant tax benefit of US$723 million, largely driven by the deferred provision. The trend reverses in 2024 with a provision of US$313 million, and continues with a provision of US$513 million in 2025. The large benefit in 2023 warrants further investigation to understand the underlying causes, such as the realization of previously unrecognized tax benefits or changes in tax legislation.

The substantial changes in the deferred provision significantly influence the overall tax expense. The increasing current provision suggests growing profitability, while the deferred provision’s volatility indicates complex tax positions or evolving tax regulations. The year 2023 stands out as an anomaly due to the large deferred tax benefit, requiring detailed examination to determine its sustainability and impact on future tax liabilities.

The effective income tax rate exhibits significant fluctuation over the observed period. While the U.S. federal statutory income tax rate remained constant at 21.00% throughout the years presented, the effective income tax rate demonstrates considerable variance.

Effective Income Tax Rate Trend

In 2021, the effective income tax rate was 7.60%. This increased substantially to 18.60% in 2022. A dramatic decrease followed in 2023, resulting in a negative effective income tax rate of -71.70%. The rate then rebounded to 18.00% in 2024 and further increased to 22.70% in 2025.

The substantial negative effective income tax rate in 2023 warrants further investigation. This outcome suggests the presence of significant tax benefits, such as tax credits, or changes in the mix of income sources, potentially including a larger proportion of income originating from tax-advantaged locations. The increase in the effective income tax rate in 2024 and 2025 indicates a potential reduction in these benefits or a shift in the company’s income composition. The 2025 rate of 22.70% is the highest observed during the period, exceeding the statutory rate, which could be due to state taxes or other non-deductible expenses.

Comparison to Statutory Rate

For most of the period, the effective income tax rate differed considerably from the U.S. federal statutory rate. The rate was below the statutory rate in 2021 and 2022, equal to the statutory rate in none of the years, and above the statutory rate in 2025. The significant deviation in 2023, resulting in a negative rate, is particularly noteworthy.

Continued monitoring of the effective income tax rate is recommended, along with a detailed understanding of the underlying factors driving these fluctuations. Further analysis should focus on identifying the specific tax benefits or income sources contributing to the observed variances.

The composition of deferred tax assets and liabilities exhibits notable shifts over the five-year period. Net operating loss carryforwards demonstrate a consistent decline from US$1,061 million in 2021 to US$260 million in 2025, suggesting a reduction in the ability to offset future taxable income with past losses. Credit carryforwards, conversely, generally increased from US$318 million to US$425 million, providing an offsetting benefit. A significant increase in capitalized research and development expenses is observed, rising from US$262 million in 2022 to US$434 million in 2024 before decreasing to US$323 million in 2025, indicating increased investment in innovation during those years.

Deferred Tax Assets

Total deferred tax assets decreased from US$2,244 million in 2021 to US$1,868 million in 2025. This decline is partially mitigated by a substantial reduction in the valuation allowance, which decreased from US$1,326 million to US$241 million. The net effect is an initial decrease in deferred tax assets less valuation allowance, followed by a significant increase from US$918 million in 2021 to US$1,764 million in 2023, before decreasing to US$1,627 million in 2025. This suggests an increasing confidence in the realization of deferred tax assets over time, particularly between 2022 and 2023.

Deferred Tax Liabilities

Deferred tax liabilities consistently increased over the period, moving from a negative US$235 million in 2021 to a negative US$613 million in 2025. This growth is primarily driven by increases in the right of use asset and related depreciation and amortization, as well as other deferred tax liability components. The depreciation and amortization component related to the right of use asset increased significantly from negative US$90 million in 2023 to negative US$375 million in 2025.

Net Deferred Tax Position

The net deferred tax position, calculated as deferred tax assets less deferred tax liabilities, shows a fluctuating trend. It began at US$683 million in 2021, decreased to US$626 million in 2022, then increased substantially to US$1,468 million in 2023, before decreasing to US$1,014 million in 2025. This variability reflects the combined impact of changes in deferred tax assets, valuation allowances, and deferred tax liabilities.

Accrued expenses began to contribute to deferred tax assets in 2024, increasing from US$78 million to US$98 million in 2025. The 'Other' component within both deferred tax assets and liabilities remained relatively stable, with minor fluctuations throughout the period. Overall, the trend indicates a shift from reliance on net operating loss carryforwards to a greater emphasis on credit carryforwards and capitalized research and development as sources of deferred tax assets, alongside a growing deferred tax liability position.

The deferred tax asset balance exhibited volatility over the five-year period. Beginning at US$692 million in 2021, it decreased to US$636 million in 2022. A substantial increase was then observed, with the balance rising to US$1,508 million in 2023, before decreasing to US$1,385 million in 2024 and further to US$1,056 million in 2025. Deferred tax liabilities remained relatively small in comparison to the deferred tax assets throughout the period.

Deferred Tax Assets - Trend Analysis

A significant growth in deferred tax assets occurred between 2022 and 2023, more than doubling the balance. The subsequent declines in 2024 and 2025 suggest a potential reversal of temporary differences or changes in the realizability of the assets. The fluctuations warrant further investigation into the underlying causes, such as changes in tax laws, loss carryforwards, or valuation allowances.

Deferred Tax Liabilities - Trend Analysis

Deferred tax liabilities demonstrated a modest increasing trend, rising from US$9 million in 2021 to US$10 million in 2022. A more noticeable increase occurred between 2022 and 2023, reaching US$40 million, followed by a slight increase to US$46 million in 2024 and a decrease to US$42 million in 2025. The relatively stable and low level of deferred tax liabilities indicates limited temporary differences giving rise to future taxable amounts.

Net Deferred Tax Position

The company consistently maintained a net deferred tax asset position throughout the period. The difference between deferred tax assets and deferred tax liabilities widened considerably in 2023, reflecting the substantial increase in deferred tax assets. While the net deferred tax asset position remained positive in 2025, the narrowing gap suggests a potential reduction in future tax benefits.

The changes in both deferred tax assets and liabilities should be examined in conjunction with the company’s income statement and other relevant financial information to fully understand the implications for future tax payments and overall financial performance.

The financial information reveals a consistent pattern of adjustments related to income taxes, resulting in reductions to reported asset, liability, and equity figures, as well as net income. These adjustments appear to stem from the removal of deferred tax assets and liabilities. The magnitude of these adjustments increases over the observed period.

Total Assets

Reported total assets demonstrate a steady increase from US$10,798 million in 2021 to US$26,038 million in 2025. However, the adjusted total assets, reflecting the removal of deferred tax items, consistently fall below the reported figures. The difference between reported and adjusted assets widens over time, moving from US$692 million in 2021 to US$1,056 million in 2025. This suggests a growing balance of deferred tax items initially recognized and subsequently removed through adjustments.

Total Liabilities

Similar to assets, reported total liabilities increase from US$7,103 million in 2021 to US$13,074 million in 2025. The adjustments to total liabilities are minimal, with the difference between reported and adjusted values remaining relatively constant around US$9 million throughout the period. This indicates that the deferred tax adjustments have a limited direct impact on the reported liability position.

Stockholders’ Equity

Reported stockholders’ equity exhibits substantial growth, rising from US$3,695 million in 2021 to US$12,964 million in 2025. The adjustments to stockholders’ equity are more significant than those to liabilities, with the difference between reported and adjusted equity increasing from US$683 million in 2021 to US$1,014 million in 2025. This suggests that a considerable portion of the deferred tax adjustments directly impacts the equity section of the balance sheet.

Net Income

Reported net income fluctuates, increasing from US$230 million in 2021 to US$1,731 million in 2023, decreasing to US$1,425 million in 2024, and then rising again to US$1,748 million in 2025. The adjusted net income is consistently lower than the reported net income in each year. The difference between reported and adjusted net income grows over the period, from US$34 million in 2021 to US$251 million in 2025. This indicates that the removal of deferred tax items reduces the reported net income, suggesting these items previously contributed to income recognition.

In summary, the adjustments consistently reduce reported financial statement values, with the most substantial impact observed on stockholders’ equity and net income. The increasing magnitude of these adjustments over time suggests a potential shift in the company’s tax position or accounting practices related to deferred taxes.

The financial metrics presented demonstrate notable differences between reported and adjusted values following the removal of deferred tax impacts. Generally, the adjustments result in modestly altered, and in some cases, amplified trends when compared to the reported figures. A consistent pattern emerges where adjustments tend to slightly increase leverage ratios and, for some profitability metrics, smooth out year-over-year volatility.

Profitability Ratios

Reported net profit margin experienced significant fluctuation, rising sharply in 2023 before declining somewhat in subsequent years. The adjusted net profit margin exhibits a more gradual upward trend throughout the period. This suggests deferred taxes contributed to the volatility in reported net income. Both reported and adjusted Return on Equity (ROE) show a similar pattern of increase in 2023, followed by a slight decrease, but the adjusted ROE consistently exceeds the reported ROE, particularly in later years. A similar dynamic is observed with Return on Assets (ROA); the adjusted ROA is consistently lower than the reported ROA, and also shows a peak in 2023 followed by a slight decline.

Asset Turnover and Financial Leverage

Reported total asset turnover remains relatively stable, with a slight downward trend observed from 2021 to 2025. The adjusted total asset turnover shows a similar pattern, but with slightly higher values overall. Reported financial leverage demonstrates a consistent downward trend, indicating a decreasing reliance on debt financing. The adjusted financial leverage also declines, but at a slower rate and remains higher than the reported leverage throughout the period. This indicates that deferred tax assets or liabilities are influencing the reported debt levels.

The adjustments related to deferred taxes appear to have a stabilizing effect on profitability ratios, while simultaneously increasing the reported level of financial leverage. The impact on asset turnover is less pronounced. The magnitude of the difference between reported and adjusted figures varies across ratios and years, suggesting the impact of deferred taxes is not constant. The substantial increase in reported profitability in 2023 is partially attributable to deferred tax benefits, as evidenced by the larger difference between reported and adjusted metrics in that year.

Overall Trend

Across the examined period, the adjustments consistently show a pattern of increasing financial leverage and, for ROE, a higher value. The impact on net profit margin and ROA is more variable, with adjustments sometimes increasing and sometimes decreasing the reported values. The overall effect is a more stable and potentially more conservative view of the company’s financial performance when deferred taxes are removed from consideration.

The period under review demonstrates significant fluctuations and overall growth in both reported and adjusted net profit margins. Reported net income experienced substantial growth from 2021 to 2023, followed by a decrease in 2024, and a subsequent increase in 2025. Adjusted net income mirrored this trend, exhibiting similar growth, decline, and recovery patterns.

Adjusted Net Profit Margin Trend

The adjusted net profit margin began at 3.32% in 2021 and increased to 4.69% in 2022. A more substantial increase was observed in 2023, reaching 9.74%. This growth continued into 2024, with the margin rising to 13.87%. The trend culminated in a further increase to 15.05% in 2025. This indicates improving profitability based on adjusted figures over the five-year period.

The difference between reported and adjusted net profit margins narrowed over time. In 2021, the adjusted margin was notably lower than the reported margin. However, by 2025, the adjusted margin nearly equaled the reported margin, suggesting a convergence in the factors impacting both calculations. This could be due to changes in the nature of adjustments made to net income.

Comparative Margin Performance

While both reported and adjusted net profit margins increased overall, the adjusted margin consistently remained below the reported margin throughout the period. The largest difference between the two margins occurred in 2023, with the reported margin at 19.30% and the adjusted margin at 9.74%. This suggests that certain items included in reported net income, but excluded in the adjusted figure, significantly contributed to profitability in that year.

The substantial growth in adjusted net profit margin from 2021 to 2025 suggests effective cost management, increased operational efficiency, or a favorable shift in revenue mix, when considering adjustments to net income. The consistent upward trajectory, despite a temporary dip reflected in the reported figures for 2024, indicates a resilient underlying business model.

The information presents a five-year trend of reported and adjusted total assets, alongside their corresponding turnover ratios. Both reported and adjusted total assets demonstrate a consistent upward trajectory throughout the period, indicating growth in the company’s asset base. However, the rate of asset growth appears to accelerate from 2023 onwards.

Reported Total Asset Turnover

The reported total asset turnover ratio exhibits relative stability, fluctuating between 0.52 and 0.55 over the five-year period. A slight decline is observed from 0.55 in 2021 to 0.51 in 2025, suggesting a marginally decreasing efficiency in generating revenue from each dollar of reported assets. The ratio remained at 0.54 in both 2022 and 2024.

Adjusted Total Asset Turnover

The adjusted total asset turnover ratio mirrors the trend of the reported ratio, remaining relatively consistent between 0.53 and 0.58. It begins at 0.58 in 2021, decreases to 0.56 in 2023, and then increases to 0.58 in 2024 before declining to 0.53 in 2025. This suggests that when adjustments are made to total assets, the efficiency in revenue generation from those assets also experiences minor fluctuations, with a similar overall downward trend as the reported ratio. The adjusted ratio consistently exceeds the reported ratio across all years, indicating that the adjustments to total assets result in a higher turnover efficiency.

The convergence of the reported and adjusted ratios towards the end of the period suggests that the impact of the asset adjustments is lessening over time. While both ratios indicate reasonably stable asset utilization, the slight downward trend warrants monitoring to ensure continued operational efficiency as the asset base continues to expand.

An examination of the financial information reveals trends in both reported and adjusted financial leverage over a five-year period. Both measures demonstrate a decreasing trend, though at differing rates. Total assets, both reported and adjusted, consistently increased throughout the period, while stockholders’ equity also exhibited growth. The adjusted figures consistently show higher leverage ratios than the reported figures.

Reported Financial Leverage

Reported financial leverage decreased steadily from 2.92 in 2021 to 2.01 in 2025. The largest decrease occurred between 2021 and 2022, falling by 0.28. Subsequent annual decreases were more moderate, ranging from 0.06 to 0.12. This indicates a decreasing reliance on financial leverage as measured by reported figures.

Adjusted Financial Leverage

Adjusted financial leverage also exhibited a declining trend, moving from 3.36 in 2021 to 2.09 in 2025. Similar to the reported leverage, the most substantial decrease was observed between 2021 and 2022, with a reduction of 0.49. The rate of decline slowed in subsequent years, with decreases between 0.07 and 0.28 annually. The adjusted leverage consistently remained higher than the reported leverage throughout the period.

Asset and Equity Trends

Reported total assets increased from US$10,798 million in 2021 to US$26,038 million in 2025, representing a substantial growth rate. Adjusted total assets followed a similar pattern, rising from US$10,106 million to US$24,982 million over the same period. Reported stockholders’ equity increased from US$3,695 million to US$12,964 million, while adjusted stockholders’ equity grew from US$3,012 million to US$11,950 million. The consistent growth in both assets and equity likely contributed to the observed decreases in both reported and adjusted financial leverage.

Discrepancy Between Reported and Adjusted Leverage

The difference between reported and adjusted financial leverage remained relatively stable over the period, generally ranging between 0.27 and 0.35. This suggests that the adjustments made to total assets and stockholders’ equity consistently result in a higher leverage ratio. The nature of these adjustments is not apparent from the information presented, but they appear to have a consistent impact on the calculated leverage.

The period between 2021 and 2025 demonstrates significant fluctuations and overall growth in both reported and adjusted financial performance. Reported net income experienced substantial growth from 2021 to 2023, followed by a decrease in 2024, and then a subsequent increase in 2025. A similar pattern is observed in adjusted net income, though the magnitudes of change differ. Stockholders’ equity, both reported and adjusted, consistently increased throughout the period, indicating strengthening financial leverage.

Reported Return on Equity (ROE)

Reported ROE began at 6.22% in 2021 and increased to 6.46% in 2022. A substantial increase was then observed in 2023, reaching 22.69%. This was followed by a decline to 14.83% in 2024 and a further decrease to 13.48% in 2025. The fluctuations in reported ROE largely mirror the changes in reported net income, suggesting a strong correlation between profitability and equity returns.

Adjusted Return on Equity (ROE)

Adjusted ROE exhibited a similar trend to reported ROE, starting at 6.51% in 2021 and rising to 7.72% in 2022. It increased to 14.19% in 2023, then to 18.42% in 2024, before decreasing to 16.73% in 2025. The adjusted ROE generally remained higher than the reported ROE throughout the period, indicating that adjustments to net income and stockholders’ equity resulted in a more favorable return metric. The peak in 2024 suggests that the adjustments had a particularly positive impact on equity returns during that year.

The divergence between reported and adjusted ROE highlights the impact of specific accounting adjustments. The consistent increase in both reported and adjusted stockholders’ equity suggests a growing capital base, while the fluctuating net income figures contribute to the observed volatility in ROE. The decrease in both reported and adjusted ROE in the final year of the period warrants further investigation to determine the underlying causes and potential implications.

The period between 2021 and 2025 demonstrates significant fluctuations and overall growth in both reported and adjusted financial performance. Reported net income increased substantially from 2021 to 2023, experienced a slight decrease in 2024, and then increased again in 2025. Adjusted net income followed a similar pattern, though the magnitude of change differed. Total assets, both reported and adjusted, consistently increased throughout the period.

Reported Return on Assets (ROA)

Reported ROA exhibited a notable increase from 2.13% in 2021 to a peak of 9.96% in 2023. This was followed by a decline to 6.99% in 2024 and a further decrease to 6.71% in 2025. The initial increase correlates with the substantial growth in reported net income, while the subsequent declines appear linked to the slower growth in net income relative to the continued expansion of total assets.

Adjusted Return on Assets (ROA)

Adjusted ROA also showed an upward trend initially, rising from 1.94% in 2021 to 2.68% in 2022. It then increased to 5.50% in 2023, followed by a more substantial increase to 8.02% in 2024, and remained relatively stable at 8.00% in 2025. The adjusted ROA demonstrates a more consistent upward trajectory than the reported ROA, suggesting that adjustments to net income and total assets provide a more stable measure of underlying profitability. The stabilization in 2025 indicates a potential plateauing of adjusted profitability relative to asset base.

The divergence between reported and adjusted ROA suggests that adjustments made to net income and total assets have a material impact on the assessment of profitability. The consistent growth in adjusted ROA, even as reported ROA declined in the later years, indicates that the adjustments are removing the effects of items that create volatility in reported earnings. The increasing asset base throughout the period is a consistent factor influencing both ROA metrics, and the relative changes in net income are key drivers of the observed trends.