What is the realization of deferred tax assets dependent on for Checkers?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Realization of the deferred tax assets is dependent on generating sufficient taxable income in the periods when the deferred tax assets are available to be utilized. The Company has recorded a valuation allowance against the deferred tax assets that are not realizable under this standard. The deferred tax assets are reviewed periodically for recoverability, and valuation allowances are adjusted as necessary.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the realization of deferred tax assets is dependent on the company generating sufficient taxable income in the periods when the deferred tax assets are available to be utilized. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that they will not be realized.
Checkers reviews these deferred tax assets periodically to determine if they can be recovered. As part of this review, valuation allowances are adjusted as necessary. This process aligns with accounting standards (ASC 740, Income Taxes) that dictate how companies should account for income taxes, specifically regarding deferred tax assets and liabilities.
For a prospective Checkers franchisee, this means that the value the company places on its deferred tax assets is closely tied to its ability to generate profits. If Checkers anticipates future profitability, it can recognize these assets. However, if profitability is uncertain, a valuation allowance is applied, reducing the recognized value of these assets. This can impact the company's overall financial health and reported income.