Accounting Ratios

Effective Tax Rate (%)

A measure of total tax paid as a percentage of the company's accounting income. Calculated as: Income Tax Expenses/Pre-tax Income.

If a company’s consolidated effective tax rate is significantly higher than the tax rate of its country of domicile, it suggests that some of the company’s subsidiaries are reporting losses. Often (but not always) this would be accompanied by a rise in deferred tax assets.

Our accounting screen is set to trigger a red flag when the effective tax rate exceeds the 80th percentile (i.e. it is very high) relative to country peers, and/or when there is an abnormally large increase relative to the normal rate of change amongst country peers over one and three years. This latter red flag is triggered when the increase in effective tax exceeds the 80th percentile relative to the change experienced by country peers between 2010 and 2015.