Effective Tax Rate (TTM)

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Definition

Effective tax rates show a company's anticipated tax bill as a percentage of taxable income. Generally, companies that can work within the tax code to pay lower taxes are looked upon favorably by investors, since these tax savings indirectly accrue to shareholders.

Two important notes regarding effective tax rates:

(1) YCharts does not calculate an effective tax rate when pre-tax income is zero or negative to avoid confusion with negative tax on negative income or positive tax on negative income.

(2) Effective tax rates are different from marginal tax rates (the tax rate the company paid on its last dollar of income).

YCharts Quarterly Effective Tax Rates can display more volatile numbers than TTM. This may be the result of tax liabilities that were not paid in previous quarters that a firm is paying off now. For analyzing purposes, we recommend to use TTM rather than quarterly data.

Formula

If Pre-Tax Income > 0:

Effective Tax Rate (TTM) = TTM Provision for Income Taxes / TTM Pre-Tax Income x 100
(expressed as a %)

If Pre-Tax Income <= 0:

Effective Tax Rate (TTM) does not exist.

Note: TTM means "trailing 12 months."

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