Folks,
I was seeting up a DCF for practise. I had to calculate the Tax rate from the historic perfomances... so I took taxable income/ net income and noted.. tax perecentage was 57% and went up to 82% and clearly im doing something wrong... please comment..
Maybe a simple Questions for allot of you..
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I'm not sure exactly what you did, but tax rate is an assumption. You should look in the footnotes of the company's financials and find their effective tax rate. Based on that, make an assumption and hold it constant into the future (should typically be between 25-35%).
i'm guessing you actually did either net income/taxable income or taxes/net income? you need to take taxes/taxable income.
Yeah, you did something wrong. The rate you find dividing taxes/NI is not the firm's actual tax rate (see footnotes) but it is a good approx. if you don't have other information. I suggest looking at the effective tax rate, unless you want to start playing with deferred tax assets and liabilities.
So my question here is, are you looking to get a tax rate? If so then why would you do Taxable Income/NI, and wouldn't that be more than 100% by logic, unless they get a tax credit and get cash back? If you want to get a rate I would say get current rate by looking at the statements and just do tax amount/taxable income, if that is not given then just (taxable income - NI)/NI. Maybe I'm misunderstanding what you are asking here, but there is no way taxes will be 50 - 80%.
sorry TI - NI/ TI
I agree with Alex_Kap about taking Taxes / Taxable income. I meant that before, I guess I wasn't very clear, my bad. I was just saying that the rate you see on the financials (income statement) isn't the real tax rate being put on the firm, just the result after taking into account deferred tax assets/liabilities due to differences in tax law and GAAP. BUT, like I said, just use the approx. mentioned (TE/TI) if no better information is available. The footnotes regarding taxes will have more info. as well.
Hope that is more clear. Sorry to get technical, but I majored in accounting, haha.
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