Deferred Tax Items Disclosures
Income tax disclosures included in the notes to financial statements can provide analysts with very useful information. Therefore, including income tax disclosures in the notes to financial statements can have a material impact on financial statement analysis, including the derivation…
Effective Tax Rate, Statutory Tax Rate, and Cash Tax Rate
Income taxes payable are determined by the mix of income locations and local tax rates, potentially influenced by business-specific tax benefits like R&D credits. Analysts must track governmental and business changes affecting tax rates. For analysts, three key tax rates…
Deferred Tax Liability and Asset
A deferred tax asset arises whenever a company’s taxable income exceeds its accounting profit. This variance results in an excess amount being paid for income taxes, which the company expects to recover in future operations. On the other hand, a…
Accounting Profit and Taxable Income
Accounting profit, referred to as income before taxes, is reported on a company’s income statement following prevailing accounting standards. Taxable income is the portion of a company’s income subject to income taxes following the jurisdiction’s tax laws within which a…
Use of Ratio Analysis in Earnings Forecast and Modeling
Data on the economy, industry, and company are used in deriving forecasts for a company. The financial analysis results, including common-size and ratio analysis, are integral to this forecasting process. The forecasts of a company’s growth and expected relationships among…
Industry-specific Ratios
There is no universally accepted definition or classification of ratios. Ratios indicate a company’s performance and value, but their significance varies by industry. Industry-specific ratios, like same-store sales changes in retail, help distinguish growth sources. In regulated sectors like banking,…
DuPont Analysis of Return on Equity
Return on Equity (ROE), i.e., net income divided by average shareholders’ equity, measures a company’s return on its equity capital. DuPont analysis is a technique that can be used to decompose ROE into its constituent parts. The process involves the…
Ratio Analysis
Financial ratios express one financial quantity concerning another and can be used to evaluate a company’s performance over time. By reducing the effect of company size, ratios can also enhance comparison between companies. Evaluating a ratio’s numerator and denominator can…
Activity, Liquidity, Solvency and Profitability Ratios
Financial ratios are used to express one financial quantity regarding another. Financial ratios can assist with company and security valuations, stock selections, and forecasting. A variety of categories may be used to classify financial ratios. Although the names of these…
Financial Analysis Techniques and Tools
Financial analysis helps assess a company’s financial performance over time and identify the trends in that performance. It can also be used to evaluate a company’s equity securities, assess its financial risk exposures, and perform necessary due diligence before a…
