The amount of deferred taxation in company accounts can demonstrate which are over-stating their assets and/or earnings. In the property sector, we have found that those with the highest deferred taxation, normally stemming from asset revaluations, also have the highest adjusted leverage, suggesting an attempt to flatter standard solvency ratios (Shui On Land/Hulic). Outside the property sector, China Everbright International (CEI, 257 HK) and Beijing Enterprises Water (BEW, 371 HK) have a high level of deferred tax which suggests that underlying subsidiaries are far smaller than disclosed to shareholders. This is a consequence of accounting interpretation IFRIC 12 which we…
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