There is one problem set discussing how the percentage change in the assumed health care cost trend rate affect the D/E ratio.
I know the liability will increase/decrease by the changes provided from the sensitivity test of rate on obiligations. However, why does the equity also change by the same amount? Doesn’t the equity be affected through expense (income statement) rather than obligation? Thank you.
Increasing cost also affects the income statement (expense) so it reduces equity at the end of the day.
Hey @harrygo, I’m exactly stuck on the same problem. Did you find the explanation?
harrygo was here four years ago; it’s unlikely that he’ll reply.
Hi @S2000magician, I hope you are doing fine wherever you are in this virus outbreak situation.
Can you throw some light on the above original harrygo question?