Fundamental Glossary / Earnings & Accounting Concepts
Effective Tax Rate
Tax expense divided by profit before tax.
Formula
Tax expense / PBT. Use tax expense including deferred tax for the accounting rate, and current tax only if you want the cash-oriented rate. Say which.
What it means
The statutory rate is what the law prints. The effective rate is what the company actually recorded. They differ because of exemptions, foreign rates, deferred tax, and items that are never taxable or deductible.
A stable effective rate close to the statutory rate is easy to forecast. A volatile rate means one-off tax items are moving profit.
How to read it
Model future earnings on a rate you can defend, usually closer to statutory unless a specific holiday is dated. Do not capitalise a one-year 8% rate forever.
What to watch
A negative effective rate, or a rate above 100%, usually means a one-time item or a loss. It is not a new normal. Also check that the denominator is profit before exceptional tax items.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.