Using Tax Accounting Measures as Equity Growth Factors

Summary

This report examines how corporate tax figures relate to business performance and how tax accounting differs from tax cash flows. It distinguishes tax payable, income tax expense, taxes and surcharges, deferred tax assets or liabilities, and cash taxes paid. Differences between tax and accounting treatment can shift when taxes are recognized, with depreciation and amortization choices among the factors that affect timing.

The report proposes tax and surcharge growth as a stock-selection factor. After industry and market-capitalization neutralization, it reports low correlation with conventional growth and profitability factors and positive information coefficients over its stated sample. It also describes a growth strategy that combines growth with healthy cash flow and reports historical returns and relative rankings. Those results are the report’s own backtest claims; the supplied text gives limited detail on portfolio construction, costs, or robustness, so they should not be treated as evidence of future performance.

Key ideas

• Tax payable, accounting tax expense, and taxes paid in cash measure different things.
• Timing differences between tax and accounting treatment can appear as deferred tax assets or liabilities.
• The report argues that tax and surcharge growth may add information beyond conventional growth and profitability factors.
• Its growth strategy combines growth measures with cash flow health, but the summary provides limited backtest methodology.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.