The effective tax rate is the actual share of pre-tax profit paid in tax.
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What it is
The effective tax rate is the income-tax expense a company reports divided by its pre-tax income. Unlike the statutory rate set by law, it reflects what the company actually bears after deductions, credits, foreign-rate differences, and timing items. It is a single percentage summarizing the real tax burden for the period.
Why it matters
The effective tax rate explains part of the gap between pre-tax and net income and signals how tax-efficient a company is. The pitfall is volatility: one-time credits, settlements, or changes in tax law can push the rate far from its normal level, so a single year can be misleading and the trend matters more than one figure.
How it's calculated
Divide reported income-tax expense by pre-tax income (earnings before tax) for the same period.
How Quintarthai uses it
The inputs — income-tax expense and pre-tax income — appear in the 10-year income statement on the Financials tab of each company page, so you can track the effective tax rate over time.
Cross-border note. Canadian and US companies face different statutory rates (combined federal-plus-provincial in Canada versus federal-plus-state in the US), and cross-border earnings plus treaty/withholding effects mean two similar firms can show very different effective rates.
FAQ
Why is the effective tax rate different from the statutory rate?
Deductions, tax credits, foreign income taxed at other rates, and timing differences move the actual rate paid away from the headline rate set by law.
Can a company have a negative effective tax rate?
Yes. Large tax credits or recognizing previously unused tax benefits can produce a net tax benefit, giving a negative effective rate for a period.
Check your understanding
A company's effective tax rate comes in far below its statutory rate for one year. What is the most reasonable interpretation?
The effective rate is volatile because credits, settlements, foreign-rate differences, and timing items can swing it, so a single year can mislead and the multi-year trend is more telling.