Problem
According to the 20x1 balance sheet of Nulife Corporation, its debt-to-equity ratio was 1.2, calculated as $6,456 : $5,380. Included in the total liabilities of $6,456 were the long-term deferred tax liabilities of $1,240. Some analysts argue that long-term deferred tax liabilities should be excluded from liabilities when computing the debt-to-equity ratio.
What would be the effect on Nulife's debt-to-equity ratio of excluding deferred tax liabilities from its calculation? What would be the percentage change?