What is Deferred Tax Asset & Liability?
Deferred tax arises from timing differences between accounting profits and taxable profits — a deferred tax asset means the company has prepaid taxes, a liability means taxes are owed later.
Formula
DTL = (Book Income - Taxable Income) × Tax Rate, when book income > taxable income
How to Interpret
Large deferred tax liabilities can indicate future cash outflows. Deferred tax assets from carried-forward losses reduce future tax payments but may expire unused.
Typical Ranges
Evaluate in context. Growing DTLs without corresponding revenue growth can be a red flag.