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Analysis of Income Taxes

Advanced level

Income Tax Expense (Benefit)
Effective Income Tax Rate (EITR)
Components of Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities, Classification
Adjustments to Financial Statements: Removal of Deferred Taxes
Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

Income Tax Expense (Benefit)

Zoetis Inc., income tax expense (benefit), continuing operations

US$ in millions

	12 months ended:	Dec 31, 2020		Dec 31, 2019		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016
	Federal
	State and local
	U.S. tax provision
	International
	Current income taxes
	Federal
	State and local
	U.S. tax provision
	International
	Deferred income taxes
	Provision for taxes on income

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

Item	Description	The company
Current income taxes	Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations.	Zoetis Inc.’s current income taxes increased from 2018 to 2019 and from 2019 to 2020.
Deferred income taxes	Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations.	Zoetis Inc.’s deferred income taxes increased from 2018 to 2019 and from 2019 to 2020.
Provision for taxes on income	Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Zoetis Inc.’s provision for taxes on income increased from 2018 to 2019 and from 2019 to 2020.

Effective Income Tax Rate (EITR)

Zoetis Inc., effective income tax rate (EITR) reconciliation

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	U.S. statutory income tax rate
	State and local taxes, net of federal benefits
	Unrecognized tax benefits and tax settlements and resolution of certain tax positions
	U.S. Research and Development Tax Credit and U.S. Domestic Production Activities deduction
	Share-based compensation
	Non-deductible/non-taxable items
	Taxation of non-U.S. operations
	Annulment of Belgium Excess Profit Ruling
	All other, net
	Effective tax rate, before impact of the Tax Act and Tax Accounting Method Changes
	Impact of the Tax Act
	Impact of Tax Accounting Method Changes
	Effective tax rate

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

Item	Description	The company
Effective tax rate, before impact of the Tax Act and Tax Accounting Method Changes	Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Zoetis Inc.’s effective tax rate, before impact of the Tax Act and Tax Accounting Method Changes decreased from 2018 to 2019 but then slightly increased from 2019 to 2020.

Components of Deferred Tax Assets and Liabilities

Zoetis Inc., components of deferred tax assets and liabilities

US$ in millions

		Dec 31, 2020		Dec 31, 2019		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016
	Prepaid/deferred items
	Inventories
	Intangibles
	Property, plant and equipment
	Employee benefits
	Restructuring and other charges
	Legal and product liability reserves
	Net operating loss/credit carryforwards
	Unremitted earnings
	All other
	Subtotal
	Valuation allowance
	Net deferred tax asset (liability)

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

Item	Description	The company
Net deferred tax asset (liability)	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting.	Zoetis Inc.’s net deferred tax asset (liability) increased from 2018 to 2019 and from 2019 to 2020.

Deferred Tax Assets and Liabilities, Classification

Zoetis Inc., deferred tax assets and liabilities, classification

US$ in millions

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	Noncurrent deferred tax assets
	Noncurrent deferred tax liabilities

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

Item	Description	The company
Noncurrent deferred 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.	Zoetis Inc.’s noncurrent deferred tax assets increased from 2018 to 2019 and from 2019 to 2020.
Noncurrent deferred tax liabilities	Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent.	Zoetis Inc.’s noncurrent deferred tax liabilities decreased from 2018 to 2019 and from 2019 to 2020.

Adjustments to Financial Statements: Removal of Deferred Taxes

Zoetis Inc., adjustments to financial statements

US$ in millions

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Noncurrent deferred tax assets, net
	Total assets (adjusted)
	Adjustment to Total Liabilities
	Total liabilities (as reported)
	Less: Noncurrent deferred tax liabilities, net
	Total liabilities (adjusted)
	Adjustment to Total Zoetis Inc. Equity
	Total Zoetis Inc. equity (as reported)
	Less: Net deferred tax assets (liabilities)
	Total Zoetis Inc. equity (adjusted)
	Adjustment to Net Income Attributable To Zoetis
	Net income attributable to Zoetis (as reported)
	Add: Deferred income tax expense (benefit)
	Net income attributable to Zoetis (adjusted)

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

Zoetis Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Zoetis Inc., adjusted financial ratios

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

Financial ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Zoetis Inc.’s adjusted net profit margin ratio improved from 2018 to 2019 and from 2019 to 2020.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Zoetis Inc.’s adjusted total asset turnover ratio improved from 2018 to 2019 but then deteriorated significantly from 2019 to 2020.
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.	Zoetis Inc.’s adjusted financial leverage ratio decreased from 2018 to 2019 and from 2019 to 2020.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Zoetis Inc.’s adjusted ROE deteriorated from 2018 to 2019 and from 2019 to 2020.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Zoetis Inc.’s adjusted ROA improved from 2018 to 2019 but then deteriorated significantly from 2019 to 2020.

Zoetis Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Zoetis
	Revenue
	Profitability Ratio
	Net profit margin¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Zoetis
	Revenue
	Profitability Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

2020 Calculations

¹ Net profit margin = 100 × Net income attributable to Zoetis ÷ Revenue
= 100 × ÷ =

² Adjusted net profit margin = 100 × Adjusted net income attributable to Zoetis ÷ Revenue
= 100 × ÷ =

Profitability ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Zoetis Inc.’s adjusted net profit margin ratio improved from 2018 to 2019 and from 2019 to 2020.

Adjusted Total Asset Turnover

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	As Reported
	Selected Financial Data (US$ in millions)
	Revenue
	Total assets
	Activity Ratio
	Total asset turnover¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Revenue
	Adjusted total assets
	Activity Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

2020 Calculations

¹ Total asset turnover = Revenue ÷ Total assets
= ÷ =

² Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= ÷ =

Activity ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Zoetis Inc.’s adjusted total asset turnover ratio improved from 2018 to 2019 but then deteriorated significantly from 2019 to 2020.

Adjusted Financial Leverage

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	As Reported
	Selected Financial Data (US$ in millions)
	Total assets
	Total Zoetis Inc. equity
	Solvency Ratio
	Financial leverage¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted total assets
	Adjusted total Zoetis Inc. equity
	Solvency Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

2020 Calculations

¹ Financial leverage = Total assets ÷ Total Zoetis Inc. equity
= ÷ =

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Zoetis Inc. equity
= ÷ =

Solvency 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.	Zoetis Inc.’s adjusted financial leverage ratio decreased from 2018 to 2019 and from 2019 to 2020.

Adjusted Return on Equity (ROE)

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Zoetis
	Total Zoetis Inc. equity
	Profitability Ratio
	ROE¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Zoetis
	Adjusted total Zoetis Inc. equity
	Profitability Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

2020 Calculations

¹ ROE = 100 × Net income attributable to Zoetis ÷ Total Zoetis Inc. equity
= 100 × ÷ =

² Adjusted ROE = 100 × Adjusted net income attributable to Zoetis ÷ Adjusted total Zoetis Inc. equity
= 100 × ÷ =

Profitability ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Zoetis Inc.’s adjusted ROE deteriorated from 2018 to 2019 and from 2019 to 2020.

Adjusted Return on Assets (ROA)

		Dec 31, 2020	Dec 31, 2019	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016
	As Reported
	Selected Financial Data (US$ in millions)
	Net income attributable to Zoetis
	Total assets
	Profitability Ratio
	ROA¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in millions)
	Adjusted net income attributable to Zoetis
	Adjusted total assets
	Profitability Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2021-02-16), 10-K (filing date: 2020-02-13), 10-K (filing date: 2019-02-14), 10-K (filing date: 2018-02-15), 10-K (filing date: 2017-02-16).

2020 Calculations

¹ ROA = 100 × Net income attributable to Zoetis ÷ Total assets
= 100 × ÷ =

² Adjusted ROA = 100 × Adjusted net income attributable to Zoetis ÷ Adjusted total assets
= 100 × ÷ =

Profitability ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Zoetis Inc.’s adjusted ROA improved from 2018 to 2019 but then deteriorated significantly from 2019 to 2020.

	Zoetis Inc.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

	All companies
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

Zoetis Inc. (NYSE:ZTS)

Analysis of Income Taxes

Income Tax Expense (Benefit)

Effective Income Tax Rate (EITR)

Components of Deferred Tax Assets and Liabilities

Deferred Tax Assets and Liabilities, Classification

Adjustments to Financial Statements: Removal of Deferred Taxes

Zoetis Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Zoetis Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)