Arista Networks Inc. (NYSE:ANET)

The analysis of the annual current and deferred income tax expenses reveals several notable trends over the five-year period from 2020 to 2024.

Current provision for income taxes

This item demonstrates a consistent upward trend throughout the period. Starting at approximately $112.9 million in 2020, it increased significantly each year to reach about $905.8 million by 2024. The growth appears to accelerate notably from 2021 onwards, more than quadrupling from 2020 to 2024. This suggests an increasing taxable income base or a change in tax rates applied to the company’s earnings.

Deferred tax benefit

The deferred tax benefit is consistently recorded as a negative figure, indicating a benefit or reduction in tax expense due to deferred tax assets or timing differences. The values show an increasing magnitude in the negative direction, starting at approximately $8.6 million in 2020 and deepening to $492.8 million by 2024. The steadily increasing deferred tax benefits could indicate growing temporary differences between accounting income and taxable income or increasing recognition of deferred tax assets over time.

Provision for income taxes (total)

The total provision for income taxes, which combines the current and deferred tax impacts, shows a more variable pattern. It starts at around $104.3 million in 2020, decreases slightly in 2021 to about $90.0 million, then sharply increases to $229.4 million in 2022, $334.7 million in 2023, and finally reaches $413.0 million in 2024. This pattern suggests that while the current tax expense has been rising steadily, the large deferred tax benefits in earlier years temporarily lowered the total provision. Over time, the overall tax provision aligns more closely with the rising current tax, but the deferred tax component continues to significantly influence the total amount.

In summary, the data indicate a substantial increase in current income tax expense over the five years, accompanied by an increasing deferred tax benefit that partially offsets the total tax provision. The overall provision for income taxes exhibits growth, with some fluctuation likely due to the sizable and increasing deferred tax benefits. This implies dynamic tax planning or shifting temporary differences affecting the timing of tax expense recognition.

The analysis of the annual tax-related percentages reveals several notable trends in the company's financial profile over the five-year period.

U.S. Federal Statutory Income Tax Rate

The federal statutory tax rate remained consistent at 21% throughout the entire period, indicating no changes in the base federal tax regulations affecting the company.

State Tax, Net of Federal Benefit

State tax rates experienced moderate fluctuations, starting at 2.23% in 2020, declining to 1.89% in 2021, then slightly increasing to 2.09% in 2022 and 2.13% in 2023, before dropping to the lowest observed rate of 1.75% in 2024. This variability suggests changes in state tax obligations or benefits netted against the federal tax impact.

Taxes on Foreign Earnings Differential

The tax impact on foreign earnings was consistently negative, ranging between -0.92% and -2.38%. After a sharp increase in negative impact from -0.92% in 2020 to -2.13% in 2021 and further to -2.24% in 2022, there was a slight improvement to -1.96% in 2023, followed by a decline again to -2.38% in 2024. This pattern indicates a fluctuating but generally increasing burden or adjustment related to foreign earnings taxation.

Tax Credits

Tax credits consistently contributed to reducing the overall tax rate, fluctuating between -2.24% and -2.79%. After a decline in credits from -2.64% in 2020 to -2.24% in 2022, there was a recovery and increase in credits in 2023 and 2024, reaching -2.79%. This suggests the company increasingly leveraged tax credits in the latter years.

Change in Valuation Allowance

Changes in the valuation allowance were minimal and erratic, with a small negative effect of -0.18% in 2020, a slight positive correction of 0.01% in 2021, and no data available for subsequent years, indicating limited or stable impact from valuation allowance adjustments on the tax rate.

Stock-Based Compensation

Stock-based compensation deductions had a pronounced impact on the tax rate, although with variability. Starting at -5.65% in 2020, this effect peaked in 2021 at -8.32%, then substantially reduced to -4.07% in 2022. Subsequent years showed moderate increases to -4.59% in 2023 and -4.96% in 2024. This trend reflects a significant but fluctuating tax benefit from stock-based compensation expenses.

Acquisition and Integration Costs

Costs related to acquisition and integration were minimal throughout the period, ranging from 0.01% to 0.27% with no observable trend. These costs had a negligible net effect on the effective tax rate.

Other, Net

Other miscellaneous tax adjustments generally hovered around zero, fluctuating slightly between small positive and negative values (-0.11% to 0.03%) without any clear trend, indicating minor and stable impact.

Effective Tax Rate

The effective tax rate showed variability but remained below the statutory federal rate of 21%. It declined from 14.12% in 2020 to the lowest point of 9.67% in 2021 before rising again to 14.5% in 2022. Subsequent years saw a gradual reduction to 13.81% in 2023 and then to 12.65% in 2024. This indicates that the company consistently benefited from various tax credits, stock-based compensation, and other adjustments to maintain an effective tax rate significantly below the federal statutory level.

Intangible Assets

There is a consistent downward trend in intangible assets, declining from $392,053 thousand in 2020 to $273,867 thousand in 2024, indicating amortization or impairment of these assets over the period.

Reserves and Accruals Not Currently Deductible

This category dropped sharply from $80,550 thousand in 2020 to $34,648 thousand in 2021, then increased progressively to $135,167 thousand by 2024. The initial decline followed by a steady increase suggests changes in timing or recognition of certain expenses affecting tax deductions.

Deferred Revenue

Deferred revenue shows a strong upward trend, starting from no recorded amount in 2020, rising to $566,273 thousand by 2024. This indicates significant growth in advance payments received from customers or contracted services not yet recognized as revenue.

Tax Credits

Tax credits steadily increased over the period, from $68,592 thousand in 2020 to $130,188 thousand in 2024, reflecting growing accumulated tax benefits likely related to research and development or other tax incentive programs.

Lease Financing Obligation

Lease financing obligations decreased from $22,080 thousand in 2020 to $13,719 thousand in 2024, indicating a gradual reduction in lease liabilities, possibly due to lease term expirations or renegotiations.

Capitalized Research and Development Expenses

This item exhibits substantial growth, rising from $23,656 thousand in 2020 to $634,534 thousand in 2024. The marked increase suggests a strategic focus on R&D investment capitalized as assets, reflecting expansion or intensification of development activities.

Stock-Based Compensation

Stock-based compensation expenses steadily increased from $18,548 thousand in 2020 to $38,631 thousand in 2024, indicating higher employee remuneration through equity incentives, likely supporting talent retention and motivation.

Net Operating Losses

Net operating losses fluctuated over the period, decreasing from $23,998 thousand in 2020 to $21,284 thousand in 2021, rising to $34,274 thousand in 2023, and then declining to $25,916 thousand in 2024. These variations reflect changing profitability dynamics and utilization of loss carryforwards.

Gross Deferred Tax Assets

There is a pronounced increase in gross deferred tax assets from $633,350 thousand in 2020 to $1,821,888 thousand in 2024, demonstrating accumulation of temporary differences and carryforwards expected to reduce future tax liabilities.

Valuation Allowance

The valuation allowance, recorded as negative amounts, increased in magnitude from -$82,638 thousand in 2020 to -$179,789 thousand in 2024. This indicates increasing reservations against the deferred tax assets due to uncertainties in recoverability.

Deferred Tax Assets

Net deferred tax assets rose significantly, from $550,712 thousand in 2020 to $1,642,099 thousand in 2024, reflecting growth in recognized tax benefit assets after subtracting valuation allowances.

US Tax on Foreign Earnings

The liability associated with US tax on foreign earnings decreased steadily from -$317,970 thousand in 2020 to -$189,823 thousand in 2024, suggesting reduced exposure or obligations related to international income repatriation taxes.

Right of Use Asset

The right of use asset related to lease accounting decreased from -$18,764 thousand in 2020 to -$11,571 thousand in 2024, consistent with the decline in lease financing obligations, indicating reduction in leased asset values on the balance sheet.

Deferred Tax Liabilities

Deferred tax liabilities consistently decreased from -$337,117 thousand in 2020 to -$201,681 thousand in 2024, reflecting the reversal or reduction of tax obligations associated with temporary taxable differences.

Net Deferred Tax Assets (Liabilities)

Net deferred tax assets increased steadily and substantially, from $213,595 thousand in 2020 to $1,440,418 thousand in 2024, highlighting an improving tax asset position that may enhance future tax planning opportunities and strengthen balance sheet health.

The financial data presents figures related to deferred tax assets and deferred tax liabilities for the years ending December 31 from 2020 through 2024.

Deferred Tax Assets, Non-Current

The value of non-current deferred tax assets shows a consistent and significant upward trend over the five-year period. Starting at approximately $441.5 million in 2020, the figure slightly increased to about $442.3 million in 2021, indicating relative stability in that year. However, from 2021 onwards, there is a marked acceleration in growth, reaching approximately $575 million in 2022, followed by a substantial rise to nearly $945.8 million in 2023. The upward momentum continues, culminating in a high of roughly $1.44 billion in 2024. This pattern suggests increasingly favorable timing differences or deductible temporary differences recognized by the company, potentially reflecting higher future tax benefits.

Deferred Tax Liabilities, Non-Current

In contrast, the non-current deferred tax liabilities exhibit a pronounced decline over the period with available data. The value decreases from approximately $227.9 million in 2020 to about $129.1 million in 2021, representing a reduction of over 40%. The downward trend continues sharply, with the balance nearly eliminated to $42,000 in 2022. Data for 2023 and 2024 are not reported, but the existing trajectory implies the possibility of these liabilities being fully resolved or substantially diminished. This reduction could be indicative of a decrease in taxable temporary differences or changes in asset bases affecting deferred tax obligations.

Overall, the juxtaposition of rising deferred tax assets against rapidly declining deferred tax liabilities suggests a strengthening net deferred tax asset position. This trend may enhance the company's future tax advantage potential, improving its tax position from an accounting perspective. The substantial growth in deferred tax assets, especially in the last two reported years, could also reflect increasing profitability or changes in tax planning strategies benefiting the company.

Total assets

The reported total assets exhibit a consistent upward trend from US$4,738,919 thousand in 2020 to US$14,043,921 thousand in 2024, indicating significant growth. Adjusted total assets follow a similar pattern, rising from US$4,297,388 thousand to US$12,603,503 thousand during the same period, reflecting the impact of adjustments such as deferred taxes.

Total liabilities

Reported total liabilities have increased steadily from US$1,418,628 thousand in 2020 to US$4,049,114 thousand in 2024. Adjusted liabilities follow this trend closely, starting from US$1,190,692 thousand and reaching US$4,049,114 thousand by 2024. The alignment between reported and adjusted liabilities becomes more pronounced in the later years, suggesting fewer adjustments relative to liabilities over time.

Stockholders’ equity

Reported stockholders’ equity demonstrates robust growth, increasing from US$3,320,291 thousand in 2020 to US$9,994,807 thousand in 2024. Adjusted stockholders’ equity also rises substantially, though at a slightly tempered pace, from US$3,106,696 thousand to US$8,554,389 thousand in the same timeframe. The gap between reported and adjusted equity suggests consistent deferred tax adjustments or other accounting considerations affecting equity balances.

Net income

Reported net income shows a strong upward trajectory, climbing from US$634,557 thousand in 2020 to US$2,852,054 thousand in 2024. Adjusted net income increases as well but at a comparatively slower rate, growing from US$625,994 thousand to US$2,359,253 thousand. This difference highlights the impact of adjustments such as deferred income tax, which likely reduce the recognized net income for adjusted results.

Overall trends and insights

All key financial metrics—assets, liabilities, equity, and net income—display consistent and substantial growth over the five-year period. The adjusted figures are consistently lower than the reported numbers, indicating the presence of adjustments that reduce the financial statement values, most likely deferred income tax-related. The narrowing convergence between reported and adjusted liabilities and the persistent gap in equity and net income suggest that deferred tax adjustments primarily affect shareholders’ equity and profitability metrics. The data reflects a financially expanding entity with improving profitability and a growing asset base, tempered by deferments in tax recognition affecting reported outcomes.

The company's financial performance over the five-year period demonstrates a generally positive trend in profitability and efficiency metrics, with some fluctuations that merit attention.

Net Profit Margin

The reported net profit margin shows a consistent upward trend, increasing from 27.38% in 2020 to 40.73% in 2024, indicating improving profitability on sales over time. The adjusted net profit margin, which accounts for income tax adjustments, follows a similar but more moderate upward pattern, rising from 27.01% in 2020 to 33.69% in 2024. This suggests that tax adjustments have a dampening effect on net profitability but the overall growth trend remains strong.

Total Asset Turnover

The reported total asset turnover ratio increased notably from 0.49 in 2020 to a peak of 0.65 in 2022, reflecting improved asset utilization. However, it declined thereafter to 0.50 by 2024. The adjusted total asset turnover also follows this pattern, rising from 0.54 in 2020 to 0.71 in 2022, then decreasing to 0.56 in 2024. This indicates that while the company became more efficient in using its assets up to 2022, there has been a reduction in asset turnover efficiency in subsequent years.

Financial Leverage

Reported financial leverage remains relatively stable, hovering around 1.4 over the five years, with a slight dip to 1.38 in 2023 before rising to 1.41 in 2024. Adjusted financial leverage shows a gradual increase from 1.38 in 2020 to 1.47 in 2024, indicating a modest rise in the use of debt or liabilities relative to equity when adjusted for tax effects. This suggests a cautious but steady increase in financial risk.

Return on Equity (ROE)

The reported ROE improves significantly from 19.11% in 2020 to 28.91% in 2023, with a slight decrease to 28.54% in 2024. Adjusted ROE follows a similar trajectory, increasing from 20.15% to a peak of 27.36% in 2023 and slightly rising to 27.58% in 2024. These patterns reflect a strong enhancement in the company’s ability to generate earnings from shareholders' equity, with adjusted figures showing a slightly lower but consistent increase.

Return on Assets (ROA)

The reported ROA exhibits a clear upward trend from 13.39% in 2020 to a high of 20.98% in 2023 before a minor decline to 20.31% in 2024. Adjusted ROA rises more moderately, from 14.57% in 2020 to 19.07% in 2023 and slightly down to 18.72% in 2024. This suggests improvements in asset profitability over time, albeit with a small recent reduction.

In summary, the company demonstrates improving profitability margins and return metrics, with efficiency in asset use peaking around 2022 before experiencing a slight downturn. Financial leverage remains stable to slightly increasing, indicating manageable risk levels with some increase in debt utilization when adjustments are considered. Overall, the trends suggest strengthening financial performance with some indications of stabilization and minor declines in asset turnover and returns in recent years.

Net Income Trends

The reported net income exhibits a steady and pronounced increase over the five-year period, rising from 634,557 thousand US dollars in 2020 to 2,852,054 thousand US dollars in 2024. Similarly, the adjusted net income shows growth from 625,994 thousand US dollars to 2,359,253 thousand US dollars in the same timeframe. Although both figures grow substantially, the adjusted net income consistently remains slightly lower than the reported net income, indicating that certain income tax adjustments have a recurring downward impact on the net earnings.

Profit Margin Analysis

The reported net profit margin improves consistently each year, increasing from 27.38% in 2020 to 40.73% in 2024. This suggests enhanced profitability relative to revenue over time. The adjusted net profit margin also trends upward, but with a lower starting point at 27.01% in 2020 and reaching 33.69% in 2024. The gap between reported and adjusted margins widens, reflecting the growing effect of income tax adjustments on the profit margin.

Comparison Between Reported and Adjusted Figures

Both reported and adjusted net income and profit margins grow significantly, yet the relative difference between them indicates the impact of deferred or other income tax considerations. The adjusted margins suggest a more conservative estimate of profitability by accounting for tax effects that reduce net income compared to reported figures. Despite these adjustments, the upward trends in both sets of data highlight improving operational efficiency and profitability over the analyzed periods.

Overall Financial Performance Insights

The consistent increase in both reported and adjusted metrics over time indicates strong growth in profitability and effective management of tax-related income adjustments. The improvement in net profit margins demonstrates the company's ability to enhance returns relative to revenues, while the adjustment differences provide important insight into the tax effects influencing net income measurements.

The total assets of the company have demonstrated a consistent growth trend over the five-year period. Reported total assets increased steadily from approximately 4.7 billion US dollars at the end of 2020 to about 14 billion US dollars by the end of 2024, more than tripling in size. Adjusted total assets, which are slightly lower than reported figures due to accounting adjustments, showed a similar growth pattern, rising from 4.3 billion to roughly 12.6 billion US dollars over the same timeframe.

Total asset turnover ratios, both reported and adjusted, have experienced fluctuations during the period. The reported total asset turnover ratio began at 0.49 in 2020, peaked at 0.65 in 2022, then declined to 0.50 by 2024. This pattern suggests an initial improvement in the company’s efficiency in generating revenue from its asset base, followed by a decline in later years. The adjusted total asset turnover ratio follows the same trajectory but consistently remains higher than the reported ratio, starting at 0.54, peaking at 0.71 in 2022, and subsequently falling to 0.56 in 2024.

Overall, the asset base expansion is significant, while the efficiency of asset utilization, measured by total asset turnover, improved notably up to the midpoint of the period but has since decreased. This could imply challenges in maintaining revenue growth proportional to asset growth in the most recent years. The higher adjusted turnover ratios indicate that the tax adjustments moderately enhance the apparent asset utilization efficiency.

Total Assets

Consistent and substantial growth in both reported and adjusted figures, more than doubling between 2020 and 2024.

Total Asset Turnover

Efficiency improved until 2022, indicated by rising turnover ratios, then declined through 2024, reflecting potentially slower revenue growth relative to asset expansion.

Comparison of Reported vs. Adjusted Data

Adjusted assets are systematically lower than reported assets, while adjusted turnover ratios are consistently higher, suggesting tax adjustments impact asset valuation and efficiency metrics.

The data reveals clear growth trends in both total assets and stockholders' equity over the five-year period analyzed. Reported total assets increased steadily from approximately 4.74 billion US dollars in 2020 to around 14.04 billion by the end of 2024. The adjusted total assets follow a similar upward trajectory, rising from about 4.30 billion to 12.60 billion within the same timeframe. This consistent increase indicates overall expansion of the company's asset base.

Stockholders' equity also demonstrates robust growth during this period. Reported stockholders’ equity more than tripled, moving from around 3.32 billion in 2020 to just under 10 billion in 2024. Adjusted stockholders’ equity similarly increased from approximately 3.11 billion to over 8.55 billion. The growing equity base suggests improved retained earnings and/or capital inflows supporting the company’s financial strength.

Financial leverage ratios present a more nuanced picture. The reported financial leverage, which is total assets divided by stockholders’ equity, remained relatively stable, fluctuating slightly between 1.38 and 1.44 over the years, indicating a consistent balance between debt and equity funding from the reported standpoint. Adjusted financial leverage started at 1.38 in 2020 but shows a gradual increase to 1.47 in 2024. This upward movement in the adjusted ratio suggests a modest rise in the relative proportion of liabilities used in the company’s capital structure when income tax adjustments are taken into account.

Overall, the steady expansion of assets and equity points to strong growth and capitalization. The relative stability of the reported financial leverage combined with the slightly increasing adjusted leverage ratio indicates that while the company has maintained a generally conservative leverage policy based on reported figures, adjustments for income tax impacts reveal a slight trend toward increased leverage over time. This could reflect strategic financing decisions, changes in tax treatment, or operational factors affecting deferred tax balances.

Total Assets

Reported and adjusted total assets grew steadily year-over-year, nearly tripling over five years, demonstrating substantial asset base expansion.

Stockholders’ Equity

Both reported and adjusted equity increased strongly, suggesting accumulated retained earnings and increased capital, supporting financial robustness.

Financial Leverage

Reported leverage remained fairly stable around 1.4, implying a balanced use of debt vs. equity. Adjusted leverage rose moderately, hinting at a gradual increase in liability proportion after tax adjustments.

The financial data reveals a consistent upward trend across key metrics from 2020 to 2024, indicating significant growth and improving profitability.

Net Income

Reported net income increased steadily each year, rising from $634.6 million in 2020 to $2.85 billion in 2024. Adjusted net income, which accounts for deferred taxes, also showed a strong growth trajectory, climbing from $626.0 million to $2.36 billion over the same period. Although adjusted net income is consistently lower than reported net income, the gap appears to widen marginally over time, suggesting increasing impacts from tax adjustments.

Stockholders’ Equity

Reported stockholders’ equity exhibited robust growth, expanding from approximately $3.32 billion in 2020 to nearly $10.0 billion in 2024. Adjusted stockholders’ equity followed a similar pattern, increasing from $3.11 billion to $8.55 billion. The consistent difference between reported and adjusted equity values points to ongoing effects of deferred tax liabilities or other adjustments on the equity base.

Return on Equity (ROE)

Reported ROE improved markedly from 19.11% in 2020 to a peak of 28.91% in 2023, slightly tapering to 28.54% in 2024. Adjusted ROE trended upward as well, rising from 20.15% in 2020 to 27.58% in 2024. The close alignment between reported and adjusted ROE percentages, despite minor variations, suggests that the company’s profitability relative to shareholder equity remains strong even when accounting for tax adjustments.

Overall, the data indicates a company experiencing strong financial growth in net income and equity, accompanied by high and improving returns on equity. The adjustments related to deferred income taxes slightly moderate reported figures but do not significantly alter the upward trends or the overall financial health and profitability portrayed by the reported data.

Net Income Trends

Reported net income demonstrates a strong and consistent upward trajectory over the five-year period, rising from approximately 635 million USD in 2020 to nearly 2.85 billion USD in 2024. Adjusted net income also shows growth but at a more moderated pace, increasing from about 626 million USD to nearly 2.36 billion USD in the same period. The gap between reported and adjusted net income widens over time, indicating increasing adjustments related to deferred or non-recurring items.

Total Assets Evolution

Reported total assets increased significantly from roughly 4.74 billion USD at the end of 2020 to over 14 billion USD by the end of 2024, nearly tripling across the period. Adjusted total assets follow a similar pattern but at consistently lower levels, reflecting the impact of tax-related and other adjustments. This growing asset base suggests substantial expansion and investment activities by the company.

Return on Assets (ROA) Analysis

Reported ROA displays an improving trend, lifting from 13.39% in 2020 to a peak of approximately 20.98% in 2023, before a slight decrease to 20.31% in 2024. Adjusted ROA follows a similar trajectory but remains somewhat lower, starting at 14.57% in 2020 and reaching 18.72% by 2024. The generally increasing ROA ratios indicate improving operational efficiency and profitability relative to asset size, although the gap between reported and adjusted ROA suggests that tax and deferred adjustments have a meaningful effect on profitability measures.

Overall Financial Health and Performance Implications

The data reflects strong financial growth in terms of net income and asset base, signifying robust expansion. The consistent increase in both reported and adjusted net income supports the view of sustainable profitability improvement, while the high and increasing ROA ratios highlight effective asset utilization. The divergence between reported and adjusted figures indicates that deferred income tax and related adjustments play a significant role, warranting careful consideration in performance assessment.