Jump to content

Accounting questions


valuefinder0525
 Share

Recommended Posts

I don't think that's a dumb question at all. It really depends on whether or not you think the company will continue to operate in a manner that created the DTL. For example, a growing manufacturing enterprise will likely continue to grow its DTL as it depreciates a growing asset base more rapidly for tax purposes than book purposes. Obviously Buffett believes his DTL, largely due to unrecognized capital gains, will continue as he holds those positions and they grow in value over time. In these situations, the DTLs should probably be treated more like equity.

 

On the other hand, if you've got a business in decline with large DTLs, those should probably be treated more like debt.

Link to comment
Share on other sites

I don't think that's a dumb question at all. It really depends on whether or not you think the company will continue to operate in a manner that created the DTL. For example, a growing manufacturing enterprise will likely continue to grow its DTL as it depreciates a growing asset base more rapidly for tax purposes than book purposes. Obviously Buffett believes his DTL, largely due to unrecognized capital gains, will continue as he holds those positions and they grow in value over time. In these situations, the DTLs should probably be treated more like equity.

 

On the other hand, if you've got a business in decline with large DTLs, those should probably be treated more like debt.

 

Thanks a lot for the explanation. How about the actual numbers? For example, for the declining business, would you increase the taxes in the next couple of years if you think the DTLs will decline and you will have to pay higher cash taxes?

Link to comment
Share on other sites

I don't think that's a dumb question at all. It really depends on whether or not you think the company will continue to operate in a manner that created the DTL. For example, a growing manufacturing enterprise will likely continue to grow its DTL as it depreciates a growing asset base more rapidly for tax purposes than book purposes. Obviously Buffett believes his DTL, largely due to unrecognized capital gains, will continue as he holds those positions and they grow in value over time. In these situations, the DTLs should probably be treated more like equity.

 

On the other hand, if you've got a business in decline with large DTLs, those should probably be treated more like debt.

 

Thanks a lot for the explanation. How about the actual numbers? For example, for the declining business, would you increase the taxes in the next couple of years if you think the DTLs will decline and you will have to pay higher cash taxes?

 

Exactly.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...