CFA Practice Question

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CFA Practice Question

If a large part of a firm's deferred liabilities will not reverse, the firm's debt to equity ratio will ______.

A. fall
B. rise
C. remain the same
Correct Answer: A

Deferred assets/liabilities can be classified as assets, liabilities, or equity. The test is whether the deferred taxes are expected to reverse. If they are not expected to reverse in the future, then they should be classified as equity. This decreases the debt-to-equity ratio.

User Contributed Comments 4

User Comment
Crown01 Cool
cslau83 Only if the analyst chose to regard is as equity.
Inaganti6 now only if the questions in the real exam would be as easy as this -_-
Freddie33 I still got it wrong
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