Baxter International Inc. (NYSE:BAX)

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Baxter International Inc., Profitability Ratios: Reported vs. Adjusted

Baxter International Inc., adjusted profitability ratios

	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
Net Profit Margin
Reported net profit margin	9.71%	14.98%	13.19%	16.39%	16.01%
Adjusted net profit margin	54.23%	15.18%	13.13%	16.37%	16.02%
Return on Equity (ROE)
Reported ROE	10.94%	30.75%	23.77%	33.53%	33.77%
Adjusted ROE	61.11%	31.17%	23.67%	33.48%	33.79%
Return on Assets (ROA)
Reported ROA	4.62%	9.63%	7.78%	11.41%	11.66%
Adjusted ROA	25.77%	9.77%	7.74%	11.39%	11.67%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

The profitability metrics exhibit a period of relative stability between 2011 and 2014, followed by a significant divergence between reported and adjusted figures in 2015. From 2011 to 2014, reported and adjusted values remained closely aligned, indicating that non-recurring items had a minimal impact on the core profitability ratios during this timeframe.

Net Profit Margin: Reported net profit margins remained stable at approximately 16% in 2011 and 2012, experienced a contraction to 13.19% in 2013, and partially recovered to 14.98% in 2014 before dropping to 9.71% in 2015. In contrast, the adjusted net profit margin surged to 54.23% in 2015, representing a drastic departure from the reported margin and the historical trend of the previous four years.
Return on Equity (ROE): Reported ROE showed a general downward trajectory, falling from 33.77% in 2011 to 10.94% in 2015, with a temporary recovery in 2014. However, the adjusted ROE for 2015 spiked to 61.11%, indicating that the factors depressing the reported equity return were excluded from the adjusted calculation.
Return on Assets (ROA): Reported ROA declined from 11.66% in 2011 to a low of 4.62% in 2015. Similar to the other ratios, the adjusted ROA diverged sharply in 2015, rising to 25.77% while the reported figure continued its decline.

A critical anomaly is observed in the 2015 fiscal year across all three profitability metrics. The substantial gap between reported and adjusted figures suggests the occurrence of a significant non-cash charge or a mark-to-market adjustment on available-for-sale securities that negatively impacted the reported bottom line but was neutralized in the adjusted results to reflect underlying operational performance.

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	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Baxter	968)	2,497)	2,012)	2,326)	2,224)
Net sales	9,968)	16,671)	15,259)	14,190)	13,893)
Profitability Ratio
Net profit margin¹	9.71%	14.98%	13.19%	16.39%	16.01%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Baxter	5,406)	2,531)	2,003)	2,323)	2,225)
Net sales	9,968)	16,671)	15,259)	14,190)	13,893)
Profitability Ratio
Adjusted net profit margin²	54.23%	15.18%	13.13%	16.37%	16.02%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ Net profit margin = 100 × Net income attributable to Baxter ÷ Net sales
= 100 × 968 ÷ 9,968 = 9.71%

² Adjusted net profit margin = 100 × Adjusted net income attributable to Baxter ÷ Net sales
= 100 × 5,406 ÷ 9,968 = 54.23%

Between 2011 and 2014, the company maintained relatively stable profitability, followed by a significant divergence between reported and adjusted financial metrics in 2015.

Reported Profitability Trends: The reported net profit margin exhibited a period of relative stability from 2011 through 2014, fluctuating between a high of 16.39% in 2012 and a low of 13.19% in 2013. A notable contraction occurred in 2015, where the margin dropped to 9.71%, coinciding with a decrease in reported net income to 968 million US dollars.
Adjusted Profitability Trends: The adjusted net profit margin mirrored the reported trend from 2011 to 2014, staying within a range of 13.13% to 16.37%. However, a substantial anomaly is observed in 2015, where the adjusted net profit margin spiked to 54.23%. This increase is driven by a surge in adjusted net income to 5,406 million US dollars, representing a significant departure from previous years.
Comparative Analysis of Divergence: A stark contrast is evident in the 2015 results. While reported net income and margins declined, adjusted figures increased dramatically. This widening gap suggests the impact of significant one-time non-operating items or accounting adjustments that heavily inflated the adjusted profitability while negatively affecting the reported net income for that fiscal year.

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	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Baxter	968)	2,497)	2,012)	2,326)	2,224)
Total Baxter shareholders’ equity	8,846)	8,120)	8,463)	6,938)	6,585)
Profitability Ratio
ROE¹	10.94%	30.75%	23.77%	33.53%	33.77%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Baxter	5,406)	2,531)	2,003)	2,323)	2,225)
Total Baxter shareholders’ equity	8,846)	8,120)	8,463)	6,938)	6,585)
Profitability Ratio
Adjusted ROE²	61.11%	31.17%	23.67%	33.48%	33.79%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ ROE = 100 × Net income attributable to Baxter ÷ Total Baxter shareholders’ equity
= 100 × 968 ÷ 8,846 = 10.94%

² Adjusted ROE = 100 × Adjusted net income attributable to Baxter ÷ Total Baxter shareholders’ equity
= 100 × 5,406 ÷ 8,846 = 61.11%

Between 2011 and 2014, the company maintained relatively stable profitability and equity returns, with reported and adjusted figures tracking closely. However, 2015 marked a period of significant divergence between reported and adjusted financial results, indicating the presence of substantial non-recurring items that heavily influenced the bottom line.

Net Income Trajectory: Reported net income remained consistent from 2011 to 2014, fluctuating between 2,012 million and 2,497 million US dollars. A sharp decline occurred in 2015, with reported income falling to 968 million US dollars. In contrast, adjusted net income rose dramatically in 2015 to 5,406 million US dollars, creating a wide variance between the two metrics.
Return on Equity (ROE) Patterns: Reported ROE exhibited a downward trend in 2013, falling to 23.77% from 33.77% in 2011, before recovering to 30.75% in 2014. By 2015, reported ROE plummeted to 10.94%. Conversely, adjusted ROE surged to 61.11% in 2015, representing the highest value in the five-year period.
Analysis of Adjusted versus Reported Variance: From 2011 through 2014, the delta between reported and adjusted ROE was minimal, typically less than one percentage point. The anomaly in 2015, where adjusted ROE exceeded reported ROE by over 50 percentage points, suggests the exclusion of significant non-cash charges or one-time losses from the adjusted calculations, which otherwise suppressed the reported performance.

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	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012	Dec 31, 2011
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Baxter	968)	2,497)	2,012)	2,326)	2,224)
Total assets	20,975)	25,917)	25,869)	20,390)	19,073)
Profitability Ratio
ROA¹	4.62%	9.63%	7.78%	11.41%	11.66%
Adjusted: Mark to Market Available-for-sale Securities
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Baxter	5,406)	2,531)	2,003)	2,323)	2,225)
Total assets	20,975)	25,917)	25,869)	20,390)	19,073)
Profitability Ratio
Adjusted ROA²	25.77%	9.77%	7.74%	11.39%	11.67%

Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).

2015 Calculations

¹ ROA = 100 × Net income attributable to Baxter ÷ Total assets
= 100 × 968 ÷ 20,975 = 4.62%

² Adjusted ROA = 100 × Adjusted net income attributable to Baxter ÷ Total assets
= 100 × 5,406 ÷ 20,975 = 25.77%

The financial performance from 2011 to 2015 exhibits a significant divergence between reported and adjusted metrics, particularly in the final year of the analyzed period. While reported figures indicate a contraction in profitability and asset efficiency by 2015, adjusted figures suggest a substantial surge in performance during that same year.

Net Income Trends: Reported net income remained relatively stable between 2011 and 2014, fluctuating between US$ 2,012 million and US$ 2,497 million, before experiencing a sharp decline to US$ 968 million in 2015. In contrast, adjusted net income followed a similar trajectory through 2014 but increased dramatically to US$ 5,406 million in 2015, representing a stark departure from the reported earnings.
Reported Return on Assets (ROA): A general downward trend is observed in reported ROA, which decreased from 11.66% in 2011 to 4.62% in 2015. The most significant drop occurred between 2012 and 2013, where the ratio fell from 11.41% to 7.78%, followed by a partial recovery in 2014 before reaching its lowest point in 2015.
Adjusted Return on Assets (ROA): Adjusted ROA closely mirrored the reported ROA from 2011 through 2014, maintaining a range between 7.74% and 11.67%. However, a critical anomaly occurred in 2015, where adjusted ROA spiked to 25.77%. This result creates a variance of 21.15 percentage points relative to the reported ROA for the same period, indicating that significant non-recurring items or accounting adjustments heavily inflated the adjusted profitability metrics in the final year.

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