[Verse 1]
When a company has losses from the past
They create deferred tax assets that should last
But management must ask a crucial question here
Will future profits make these benefits appear?
[Chorus]
More likely than not, that's the test we apply
If future taxable income seems too shy
Set up a valuation allowance today
To reduce the asset and show the true way
More likely than not, fifty percent or higher
If below that threshold, allowance required
[Verse 2]
Look at the evidence both positive and negative
Recent losses make the outlook less definitive
But if contracts and backlogs show income ahead
The deferred tax asset keeps its value instead
[Chorus]
More likely than not, that's the test we apply
If future taxable income seems too shy
Set up a valuation allowance today
To reduce the asset and show the true way
More likely than not, fifty percent or higher
If below that threshold, allowance required
[Bridge]
When you see an allowance on the balance sheet
It tells you management thinks recovery's not sweet
But if they reverse it in a future year
That means better times are drawing near
[Verse 3]
For analysts this matters more than you might think
It shows you management's view from the brink
Conservative companies set allowances high
While optimistic ones might let assets fly
[Chorus]
More likely than not, that's the test we apply
If future taxable income seems too shy
Set up a valuation allowance today
To reduce the asset and show the true way
More likely than not, fifty percent or higher
If below that threshold, allowance required
[Outro]
So when you see deferred tax assets there
Check if allowances show management's care
The fifty percent rule will guide your way
Through valuation allowance judgment day