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Microsoft Excel LibreOffice Calc

Stryker Corp. (SYK)


Analysis of Income Taxes

Difficulty: Advanced


Income Tax Accounting Policy

Deferred income tax assets and liabilities are determined based on differences between financial reporting and income tax bases of assets and liabilities and are measured using the enacted income tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax benefits generally represent the change in net deferred income tax assets and liabilities in the year. Other amounts result from adjustments related to acquisitions and foreign currency as appropriate.

Stryker operates in multiple income tax jurisdictions both within the United States and internationally. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on current interpretations of complex income tax regulations. Income tax authorities in these jurisdictions regularly perform audits of Stryker’s income tax filings. Income tax audits associated with the allocation of this income and other complex issues, including inventory transfer pricing and cost sharing, product royalty and foreign branch arrangements, may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates.

Source: 10-K (filing date: 2019-02-07).


Income Tax Expense (Benefit)

Stryker Corp., income tax expense (benefit), continuing operations

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
United States federal hidden hidden hidden hidden hidden
United States state and local hidden hidden hidden hidden hidden
International hidden hidden hidden hidden hidden
Current income tax expense hidden hidden hidden hidden hidden
United States federal hidden hidden hidden hidden hidden
United States state and local hidden hidden hidden hidden hidden
International hidden hidden hidden hidden hidden
Deferred income tax expense (benefit) hidden hidden hidden hidden hidden
Income tax expense (benefit) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Item Description The company
Current income tax expense Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Stryker Corp.’s current income tax expense increased from 2016 to 2017 but then slightly declined from 2017 to 2018 not reaching 2016 level.
Deferred income tax expense (benefit) Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Stryker Corp.’s deferred income tax expense (benefit) increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Income tax expense (benefit) Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Stryker Corp.’s income tax expense (benefit) increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Effective Income Tax Rate (EITR)

Stryker Corp., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
United States federal statutory tax rate hidden hidden hidden hidden hidden
United States state and local income taxes, less federal deduction hidden hidden hidden hidden hidden
Foreign income tax at rates other than 21% hidden hidden hidden hidden hidden
Tax related to repatriation of foreign earnings hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Effective income tax rate, before Tax Cuts and Jobs Act of 2017 and intellectual property transfer hidden hidden hidden hidden hidden
Tax Cuts and Jobs Act of 2017 transition tax hidden hidden hidden hidden hidden
Tax Cuts and Jobs Act of 2017 deferred tax changes hidden hidden hidden hidden hidden
Intellectual property transfer hidden hidden hidden hidden hidden
Effective income tax rate hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Item Description The company
Effective income tax rate, before Tax Cuts and Jobs Act of 2017 and intellectual property transfer Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Stryker Corp.’s effective income tax rate, before Tax Cuts and Jobs Act of 2017 and intellectual property transfer declined from 2016 to 2017 but then slightly increased from 2017 to 2018.

Components of Deferred Tax Assets and Liabilities

Stryker Corp., components of deferred tax assets and liabilities

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Inventories hidden hidden hidden hidden hidden
Product-related liabilities hidden hidden hidden hidden hidden
Other accrued expenses hidden hidden hidden hidden hidden
Depreciation and amortization hidden hidden hidden hidden hidden
State income taxes hidden hidden hidden hidden hidden
Share-based compensation hidden hidden hidden hidden hidden
Net operating loss carryforwards hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Deferred income tax assets hidden hidden hidden hidden hidden
Valuation allowances hidden hidden hidden hidden hidden
Net deferred income tax assets hidden hidden hidden hidden hidden
Depreciation and amortization hidden hidden hidden hidden hidden
Undistributed earnings hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Deferred income tax liabilities hidden hidden hidden hidden hidden
Net deferred income tax assets (liabilities) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Item Description The company
Deferred income tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Stryker Corp.’s deferred income tax assets declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Net deferred income tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Stryker Corp.’s net deferred income tax assets declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Net deferred income tax assets (liabilities) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. Stryker Corp.’s net deferred income tax assets (liabilities) declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Deferred Tax Assets and Liabilities, Classification

Stryker Corp., deferred tax assets and liabilities, classification

US$ in millions

Microsoft Excel LibreOffice Calc

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Item Description The company
Noncurrent deferred income tax assets Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent. Stryker Corp.’s noncurrent deferred income tax assets declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Noncurrent deferred income tax liabilities (included in Other noncurrent liabilities) Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. Stryker Corp.’s noncurrent deferred income tax liabilities (included in Other noncurrent liabilities) declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.

Analyst Adjustments: Removal of Deferred Taxes

Stryker Corp., adjustments to financial data

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Current Assets
Current assets (as reported) hidden hidden hidden hidden hidden
Less: Current deferred tax assets, net hidden hidden hidden hidden hidden
Current assets (adjusted) hidden hidden hidden hidden hidden
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden
Less: Current deferred tax assets, net hidden hidden hidden hidden hidden
Less: Noncurrent deferred tax assets, net hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden
Adjustment to Current Liabilities
Current liabilities (as reported) hidden hidden hidden hidden hidden
Less: Current deferred tax liabilities, net hidden hidden hidden hidden hidden
Current liabilities (adjusted) hidden hidden hidden hidden hidden
Adjustment to Total Liabilities
Total liabilities (as reported) hidden hidden hidden hidden hidden
Less: Current deferred tax liabilities, net hidden hidden hidden hidden hidden
Less: Noncurrent deferred tax liabilities, net hidden hidden hidden hidden hidden
Total liabilities (adjusted) hidden hidden hidden hidden hidden
Adjustment to Total Stryker Shareholders’ Equity
Total Stryker shareholders’ equity (as reported) hidden hidden hidden hidden hidden
Less: Net deferred tax assets (liabilities) hidden hidden hidden hidden hidden
Total Stryker shareholders’ equity (adjusted) hidden hidden hidden hidden hidden
Adjustment to Net Earnings
Net earnings (as reported) hidden hidden hidden hidden hidden
Add: Deferred income tax expense (benefit) hidden hidden hidden hidden hidden
Net earnings (adjusted) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).


Stryker Corp., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Deferred Taxes (Summary)

Stryker Corp., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Current Ratio
Reported current ratio hidden hidden hidden hidden hidden
Adjusted current ratio hidden hidden hidden hidden hidden
Net Profit Margin
Reported net profit margin hidden hidden hidden hidden hidden
Adjusted net profit margin hidden hidden hidden hidden hidden
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Stryker Corp.’s adjusted current ratio deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Stryker Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Stryker Corp.’s adjusted total asset turnover improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Stryker Corp.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Stryker Corp.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Stryker Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Stryker Corp., Ratios: Reported vs. Adjusted


Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Current assets hidden hidden hidden hidden hidden
Current liabilities hidden hidden hidden hidden hidden
Ratio
Current ratio1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted current assets hidden hidden hidden hidden hidden
Adjusted current liabilities hidden hidden hidden hidden hidden
Ratio
Adjusted current ratio2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

2 Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Stryker Corp.’s adjusted current ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings hidden hidden hidden hidden hidden
Net sales hidden hidden hidden hidden hidden
Ratio
Net profit margin1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings hidden hidden hidden hidden hidden
Net sales hidden hidden hidden hidden hidden
Ratio
Adjusted net profit margin2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Net profit margin = 100 × Net earnings ÷ Net sales
= 100 × hidden ÷ hidden = hidden

2 Adjusted net profit margin = 100 × Adjusted net earnings ÷ Net sales
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Stryker Corp.’s adjusted net profit margin deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net sales hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Net sales hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Stryker Corp.’s adjusted total asset turnover improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Total assets hidden hidden hidden hidden hidden
Total Stryker shareholders’ equity hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets hidden hidden hidden hidden hidden
Adjusted total Stryker shareholders’ equity hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Financial leverage = Total assets ÷ Total Stryker shareholders’ equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Stryker shareholders’ equity
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Stryker Corp.’s adjusted financial leverage increased from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings hidden hidden hidden hidden hidden
Total Stryker shareholders’ equity hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings hidden hidden hidden hidden hidden
Adjusted total Stryker shareholders’ equity hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 ROE = 100 × Net earnings ÷ Total Stryker shareholders’ equity
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted total Stryker shareholders’ equity
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Stryker Corp.’s adjusted ROE deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden hidden
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2019-02-07), 10-K (filing date: 2018-02-08), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 ROA = 100 × Net earnings ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Stryker Corp.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.