Leverage Ratio and Deferred Tax Liability

havinjain1988
Posts: 1
Joined: Sat Jan 04, 2014 3:18 pm

Leverage Ratio and Deferred Tax Liability

Postby havinjain1988 » Sat Jan 04, 2014 3:25 pm

Why is Leverage Ratio important and How does it help in evaluating the Defaulting Risk of the Firm ?
ANd what do we mean by Deferred Tax Liability and Deferred Tax Asset ?

pradeeppdy
Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

Leverage Ratio and Deferred Tax Liability

Postby pradeeppdy » Tue Jan 07, 2014 6:15 am

Leverage ratio is important because it define about the company debt position and financial position. It is very helpful for analyst in evaluating the firm risk.

DTA and DTL always created by temporary differences in Taxation accounting method and firm accounting method. For example - Depreciation is calculated by firm is 20% but for Taxation purposes it is only 10% and we take asset value as 10000, So there fore it will create 1000 as DTA.

pradeeppdy
Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

Leverage Ratio and Deferred Tax Liability

Postby pradeeppdy » Wed Apr 02, 2014 8:04 am

Leverage ratio implies the financial health of any co. There can be many leverage ratios like Debt / Equity ratio , Interest coverage ratio (EBIT/I) , Long term debt to Equity ratio etc. Abnormally high leverage ratio or Debt burden means that the co. has high probability of default. This information is useful to Directors , Creditors , Investors , Govt. etc.


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