Effective tax rate

Also called: effective tax rate

The share of pre-tax profit the company actually paid (or booked) in tax.

Formula

Effective tax rate = Income tax expense ÷ Pre-tax income

Worked example

1. Income tax expense = $400m
2. Pre-tax income = $1.9bn
3. $400m ÷ $1.9bn

Result: 21.1%

How to read it

The US federal rate is 21%; state and foreign taxes and credits move the effective rate up or down.

Worked example uses made-up figures for 'Example plc'

See it with real numbers: Any company page → (free account)