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READING 16: MULTINATIONAL OPERATIONS
MODULE 16.8: TAX, SALES GROWTH, FINANCIAL RESULTS
Effective tax rate is the tax expense in the income statement divided by pretax profit.
Statutory tax rate is provided by the tax code of the home country. Accounting standards require companies to provide a reconciliation between the
effective tax rate and the statutory tax rate. This reconciliation disclosure can be used by the analyst to project future tax expense.
Changes in effective tax rate on account of foreign operations can be due to:
• Changes in the mix of profits from different countries (with varying tax rates).
• Changes in the tax rates.
