prepping for my CFA lv 1 exam now and have a question regarding the valuation allowance..
"Would an increase in valuation allowance signal the company's expectations of a decreased future earnings power or increased future earnings power?" -- please help explain as well... :)
Thanks!
| +335 | Return Rates For Interns Are Falling? | 142 | 1h |
| +152 | Article: Why UBS's Asian M&A bankers are thriving and UBS's American M&A bankers are not | 17 | 8h |
| +145 | Evercore > Goldman and I don’t think it’s particularly close anymore | 56 | 1h |
| +124 | I am a drunk MD AMA | 40 | 1d |
| +86 | UBS Offer Day | 30 | 23h |
| +75 | Santander IB? | 10 | 3d |
| +68 | I hate Wells Fargo | 19 | 7h |
| +51 | No return offer - feeling like a failure is an understatement | 20 | 2h |
| +45 | How cooked am I as an incoming WF IB SA 2027? | 17 | 1h |
| +43 | WF Return offers | 28 | 2d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
I would assume that an increase in valuation allowance would mean that the company is developing a reserve that it can reverse in later years to reduce taxes and thereby signals that the company's future earnings power is likely to decrease
An allowance account is a contra-account to an asset which reduces that asset. So therefore an increase in the allowance reflects a decreased expectation in the company's future earnings power. Similar to if "allowance for doubtful accounts" was increased, meaning that the company expects it will be able to collect less (decrease) from its outstanding receivables.
Laborum debitis dicta rerum velit voluptas. Voluptas eveniet non vero illum ea debitis illo. Fugiat rerum in doloribus earum est rem a.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...