Definition:

Change in Income Taxes Payable refers to the difference in the amount of income taxes a company owes at the end of a reporting period compared to the previous period. It reflects how much the company's tax liability has increased or decreased over a specific time frame.

Examples

1. If a company owed $10,000 in income taxes at the end of the previous year and $12,000 at the end of the current year, the change in income taxes payable is $2,000.
2. A company that had an income tax payable of $5,000 last quarter and $3,000 this quarter experienced a decrease of $2,000 in its income taxes payable.

Formula:

Change in Income Taxes Payable = Income Taxes Payable at End of Period - Income Taxes Payable at Beginning of Period

How to use the metric:

This metric is used to assess changes in a company's tax obligations over time, which can indicate shifts in profitability, changes in tax rates, or adjustments in tax planning strategies. It is often analyzed in conjunction with other financial metrics to understand a company's financial health and tax strategy.

Limitations:

1. It does not provide insights into the reasons behind the change, such as changes in tax laws or accounting practices.
2. It may not reflect cash flow implications if taxes are deferred or prepaid.
3. It does not account for potential future tax liabilities or refunds.

Applies to:

This metric is applicable across various industries, especially those with significant tax obligations, such as manufacturing, retail, and financial services.

Doesn't apply to:

Industries with minimal tax obligations, such as non-profit organizations, may find this metric less relevant. Additionally, industries with complex tax structures, like multinational corporations, may require more detailed tax analysis beyond this metric.

Summary:

Change in Income Taxes Payable is a financial metric that measures the variation in a company's tax liabilities over a specific period. It provides insights into changes in tax obligations but should be used alongside other financial metrics for a comprehensive analysis. While applicable to most industries, its relevance may vary based on the complexity and nature of the business's tax situation.