Agree Peter13!
This place works best a couple of months leading up to the exam, not the week following the exam. Where were you all this time? Are you seriously trying to disguise the fact that it was the actual exam that prompted you to these queries? Or are you getting an early head start for L2 again?
#spiritofthelawnottheletterofthelaw
for me, CFA is not about taking the test and forgetting stuff afterwards. i m planning to use this information and find it very helpful to read the discussions.
I had not seen the person asking the question refering to anything specific or anything related to the actual exam. neither anybody on the thread, therore, i have no clue what you are talking about here.
i am saying that it is importatnt for ppl who work in finance to lear (in fact it is a part of code of ethics per the CFAI, to encourage peers to learn) and reading and discussing these topics is important regardless, if you passe, failed, taking again, already a charterholder, or whatever else.
on point
If we’re here to learn and nothing else, why tie ourselves to what’s in the curriculum? Here is an article answering your question: http://m.pionline.com/article/20150707/ONLINE/150709934/discount-rate-rises-for-fifth-straight-month-boosting-corporate-pension-funding-ratios-8212-2-reports
But I am only interested in whats in the curriculum
I didn’t take the test this time, so I can comfortably speak and know I’m not discussing things from the exam.
Given that the net pension liability or asset (with a ceiling) is directly reflected in the BS, I would expect the ratios to be affected, and calc the effect according to whatever’s reflected in the statements.
To the extent that pension assumptions affect the statements, they will affect the ratios.
This is a general question, say for example, the discount rate increases
Of course it will have an impact on some ratios.
The PBO will change if you change any of the assumptions:
- Length of service
- Salary growth rate
- Post-employment longevity
- Discount rate
- Probability of vesting
If the PBO changes, then either assets or liabilities will change.
Changing the assumptions will also change the annual pension expense, which will change net income.
So clearly some ratios will change:
- (Net) profit margin
- Asset turnover (possibly)
- ROA
- ROE
- Financial leverage
- and so on
Ok but how would an increase in interest rates affect the pension expense
Thanks for clarifying and giving details on all potential impacts
and you would never be asked a question of that sort on the exam anyway. but in general, we would have enough information given in a vignette to answer the question.
but if you are really curious, scroll to page 80 of the GM’s 10-K and see how changes in the discount rate over time were impacting service and interest cost (which are reflected in the IS). and just as the curriculum tells us, lower discount rate led to lower interest cost, but higher service cost.
where did you see that asset turnover is impacted? can you give us the explaination they provide?
Actually I am just asking if it does, and magician says it does but i dont see it.
Well, i think all turnover ratios (besides those using COGS in a numerator I guess) are likely be impacted through the revenue part. It s probably unlikely for a discount rate to have a zero sum effect on revenue thorough increase/decrease of interest/service cost…
Really?
Usually you show only the net asset or liability, not the plan assets and PBO separately.
So, if you have an overfunded plan and change an assumption, then your total assets could change.
You are right, my bad. Somehow i started accounting for these expenses in tthe revenue. hahah
But I guess, what Bill means is that this ratio would be impacted only if a company had overfunded plan (you need to have the asset portion somehow affected) and there is a reduction or smth.
Ok