Definition:

Total Deferred Taxes refer to the net amount of deferred tax liabilities and deferred tax assets on a company's balance sheet. These arise due to temporary differences between the tax base of an asset or liability and its carrying amount in the financial statements, which will result in taxable or deductible amounts in future periods.

Examples

1. A company uses accelerated depreciation for tax purposes but straight-line depreciation for accounting purposes, creating a deferred tax liability.
2. A company recognizes revenue in its financial statements before it is taxable, leading to a deferred tax asset.

Formula:

Total Deferred Taxes = Deferred Tax Liabilities - Deferred Tax Assets

How to use the metric:

Total Deferred Taxes help assess the future tax implications of a company's current financial position. Analysts use this metric to evaluate the timing of tax payments and potential future tax benefits or obligations, impacting cash flow projections and valuation models.

Limitations:

1. Deferred taxes are based on estimates and assumptions, which may change over time.
2. Changes in tax laws can significantly affect deferred tax calculations.
3. The metric does not provide immediate cash flow information, as it relates to future periods.

Applies to:

Total Deferred Taxes are applicable across various industries, especially those with significant capital investments, such as manufacturing, real estate, and utilities, where temporary differences are common.

Doesn't apply to:

Industries with minimal differences between tax and accounting treatments, such as certain service industries, may find this metric less relevant, as they may not have significant deferred tax balances.

Summary:

Total Deferred Taxes represent the net effect of temporary differences between accounting and tax treatments, impacting future tax liabilities or assets. While useful for understanding future tax implications, the metric is subject to estimation and regulatory changes, making it more relevant in industries with significant capital investments.