In AirAsia's financial statement, There's a very important item, named "deferred tax". I didn't have any idea about what is it and what it means. (because I was a science-stream student, and never learn about accounting in school). I thought that it's some kind of complex taxing calculation, and I'd just ignored it in my previous analysis of AirAsia.
But, later I found that this "deferred tax" play an important role in AirAsia's financial statement. It made up about 20% of AirAsia's equity, and more than 40% of AirAsia's PAT! So, I think it's a MUST to understand what is it, and where it comes from.
After some readings and studies, I've get some idea about this "deferred tax". I understand that, due to the International Accounting Standard, this "deferred tax" is allowed to be recorded in an income statement. But I really doubt that this is a proper practice in reflecting the financial performance of a company.
The "deferred tax" item in AirAsia, for example, represent the tax credit given to the company. Though this tax credit is incurred during current year due to the company's CAPEX, it can only be realised/utilised in the future, i.e. when AirAsia is asked to pay a tax in the future, it can utilise the the tax credit, and save a lots of cash from the taxes it should pay.
My conclusion is, a "deferred tax" recorded in the income statement of a particular year actually bring no cash-flow into the company during that year. That's not an earning (at least in my opinion), just a future savings of tax. Showing the "deferred tax" in the income statement means recording a tomorrow cash-flow in today's statement. It's some kind of accounting technique to "polish" the financial performance of a company".
So, I've to do a new valuation on AirAsia. According to it's Q4-FY2007 statement, its EPS is about 21 sen, quite a good income. But if we exclude the deferred tax item from its income statement, its EPS is only 12 sen. If we exclude also the special item ("other operational income"), AirAsia's EPS for FY-2007 will become 8 sen only. This will give a PER value of about 25, quite a high number for a conservative investor like me. So, the share price of RM1.90 now is not as attractive as what i thought before.
However, the latest financial report shows that AirAsia still pose a very good prospect in the coming years. It's quite likely to have a 50% growth in PAT this year. So now... I'll hold its stock and continue to monitor its performance. If its EPS for FY-2008 (excluding deferred tax) can grow to a value not less than 15 sen, I'll consider to keep accumulating AirAsia's stock.
3 comments:
Airasia was making lost in previous year before the new management kick in, the deferred tax credit might come from the previous year...
it also mean the tax that declare by the company when making lost, so now, they can claim back the tax credit, should be something like that
definition from investopedia
"Deferred tax assets can arise due to net loss carryovers"
***just giving u an idea, i din't look into AIRASIA financial report yet..
I'm an IT student as well..haha
Hi, noobita.
Actually, AirAsia's tax credit is come from the tax allowance given by our government. This allowance is incurred from its huge capex (the money it spent to buy aircrafts).
Anyway, thanks for your comment.
I think you should read more on Financial Reporting Standard to fully understand what is Deferred tax actually about. Both of you are talking rubbish here. Please do more research before you make such a comment.
Have a nice day
Post a Comment