Interpreting Deferred Taxes
Sigma Designs’ statement of operations is summarized below (dollars in thousands):
|
1995 |
1994 |
1993 |
|
|
Net sales |
$43,700 |
$ 34,989 |
$27,058 |
|
Costs and expenses: |
|||
|
Cost of sales |
36,980 |
27,538 |
23,045 |
|
Restructuring charges |
(517) |
13,654 |
0 |
|
Sales and marketing |
9,022 |
9,448 |
7,476 |
|
Research and development |
4,349 |
11,988 |
5,043 |
|
General and administrative |
3,521 |
2,718 |
1,951 |
|
Total cost and expenses |
53,355 |
65,346 |
37,515 |
|
Income (loss) from operations |
(9,655) |
(30,357) |
(10,457) |
|
Interest income—net |
336 |
699 |
1,207 |
|
Other net |
546 |
(39) |
(67) |
|
Income (loss) before income taxes |
(8,773) |
(29,697) |
(9,317) |
|
Provision (credit) for income taxes |
— |
(151) |
(2,151) |
|
Net income (loss) |
$(8,773) |
$(29,546) |
$(7,166) |
Required
a. Explain the item “Provision (credit) for income taxes.”How can income taxes be positive? That is, how can income taxes be added to income?
b. How does this new interpretation about deferred taxes (see part a) affect your evaluation of Sigma Design’s profitability? Calculate relevant income statement ratios using both “bottom line” net income and any other income figures that you deem relevant. Be sure to calculate the net income ratio on an after tax basis. Calculate any other appropriate ratios and evaluate Sigma Design’s performance for 1995. Assume interest expense is $200 (dollars in thousands).
Interpreting Deferred Taxes
Sigma Designs’ statement of operations is summarized below (dollars in thousands):
|
1995 |
1994 |
1993 |
|
|
Net sales |
$43,700 |
$ 34,989 |
$27,058 |
|
Costs and expenses: |
|||
|
Cost of sales |
36,980 |
27,538 |
23,045 |
|
Restructuring charges |
(517) |
13,654 |
0 |
|
Sales and marketing |
9,022 |
9,448 |
7,476 |
|
Research and development |
4,349 |
11,988 |
5,043 |
|
General and administrative |
3,521 |
2,718 |
1,951 |
|
Total cost and expenses |
53,355 |
65,346 |
37,515 |
|
Income (loss) from operations |
(9,655) |
(30,357) |
(10,457) |
|
Interest income—net |
336 |
699 |
1,207 |
|
Other net |
546 |
(39) |
(67) |
|
Income (loss) before income taxes |
(8,773) |
(29,697) |
(9,317) |
|
Provision (credit) for income taxes |
— |
(151) |
(2,151) |
|
Net income (loss) |
$(8,773) |
$(29,546) |
$(7,166) |
Required
a. Explain the item “Provision (credit) for income taxes.”How can income taxes be positive? That is, how can income taxes be added to income?
b. How does this new interpretation about deferred taxes (see part a) affect your evaluation of Sigma Design’s profitability? Calculate relevant income statement ratios using both “bottom line” net income and any other income figures that you deem relevant. Be sure to calculate the net income ratio on an after tax basis. Calculate any other appropriate ratios and evaluate Sigma Design’s performance for 1995. Assume interest expense is $200 (dollars in thousands).