Assume effective tax rate for NOPAT?
I'm trying to calculate LTM ROIC by hand, and I need to find NOPAT, which I know is = operating income * (1 - effective tax rate). What do I use for the effective tax rate? Do I just use LTM, or do I do a historical average? For LTM, the effective tax rate was 71.2% because of unusual events, so that makes no sense. Do I just assume 25% or something?
Check the filings/MD&A to see if there is a go forward assumption. If not, use the historical average or applicable corporate tax rate. 25% seems arbitrary. Would use something a little more pointed than that.
Thanks for the response. 25% was arbitrary, how would you determine the "applicable corporate tax rate"?
If the company has been consistently making a profit since 2017 (Trump tax reform year), you can use the historical average of the rates in each year. Probably the easiest and most accurate way to approach, given the amount of information that you have. You can also remove outliers with unusual tax rates caused by DTAs/DTLs if you don't plan to project those out.
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