Common-sized Income Statements material, number, effective, better

glamorous

Why does the material say that looking at the effective tax rate is better than looking at the common-sized number for presenting Income Tax Expense?

ramzes

because the CS % is from revenues, not EBT

spartanag07

Just going to elaborate a bit on what js said.

For taxes you are interested in the percentage of earnings before tax that the company is paying out in taxes (effective tax rate), not the percentage of sales that it pays out as taxes (which is what a common-size percentage based on revenues indicates).

Benjiko

Thanks guys. Very clear explanation.