Do changes in pension assumptions impact ratios?

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Peter13

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Like a higher discount rate would affect the pension expense and funded status but do they directly impact ratios such as leverage etc or are they considered off balance sheet?
 
Oh, come on, 110 more candidate pledge breaches like this and I’ll know my score. You’re taking the whole fun out of it.
 
Nowhere in the books does it explain if ratios are impacted, its only the impact on funded status, pension expense, and service and interest cost.
 
I guess it isn’t important. You only have to remember the effect on funded status, pension expense, and service and interest cost.
 
But do they generally impact financial ratios or do they not since the PBO or Plan asset (asset/liability) is a net amont and would not impact leverage or asset turnover etc?
 
The key is to consider the possible impact of each assumption on financial statements, and thus any effect that should stem from this assumption (denominator/numerator).
 
However do keep in mind that PBO and plan assets ar lagely ignored in determining a firm’s total assets or liabilities as they are masked from the financial statements, and only a net amount is shown, how can you determine the impact of Debt/Assets (say if a firm’s discount rate increases)
 
It depend of the assumed assumption, but if there is an impact through OCI… Do you know what I mean ?
 
OCI relates to equity.. so it would not impact the leverage ratio directly? Or asset turnover? for example an increase in discount rate
 
I guess you should check these formulae, but if you listed them, you’d have an idea of the direct or indirect impact on them.
We cannot give more details here, otherwhise we’d violate Standard VII.
 
It would not have any impact on ratios - hence the reason why this is not covered in the curriculum.
 
Rising Alpha wrote:
I guess you should check these formulae, but if you listed them, you’d have an idea of the direct or indirect impact on them.
We cannot give more details here, otherwhise we’d violate Standard VII.
Click to expand...
How do you violate the standard by discussing the impact of assumptions on ratios? I thought that what this forum is about. To ask questions about the finance-related topics and provide our subjective responses. I don’t see anybody talking about the actual test material, at least I hope so. I am also interested to understand how assumptions impact ratios.
 
Cynical Man wrote:
Rising Alpha wrote:
I guess you should check these formulae, but if you listed them, you’d have an idea of the direct or indirect impact on them.
We cannot give more details here, otherwhise we’d violate Standard VII.
Click to expand...
How do you violate the standard by discussing the impact of assumptions on ratios? I thought that what this forum is about. To ask questions about the finance-related topics and provide our subjective responses. I don’t see anybody talking about the actual test material, at least I hope so. I am also interested to understand how assumptions impact ratios.
Click to expand...
 
You’ll not violate the Standard VII as long as the question is not related to actual Exam. This is why the topic seems to be an issue…
Nonetheless there is no problem with unrelated Exam questions.
 
Yes @JeffO15, it would not directly impact because how would you know if it would lead to an increase in the asset or liability side you only see the net amount, so I would assume they are unimpacted directly
 
Ratios for sure will get impacted :-
Let us take the example of profitability:
In US GAAP, if the unamortized value of Actuarial Gains/Losses exceed 10% of the Value of funded status, we need to amortize those G/L in the Income Statement. This will impact Net Income and hence profitability. This NI amount will eventually roll to Equity and so it could also impact ratios that involve BS.
 
Yes I do see Net Income impacted, but again do not see how Revenue or Assets would be impacted, OCI is equity.. Liabilities side also cant be evidently directly impacted because PBO or Plan Assets is only a net amount, you cant be sure where exactly increased/decreased
 
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