Effective Tax Rate
Represents the average rate at which a corporation or individual is taxed on their pre-tax income. Effective Tax Rate offers a clear picture of the actual tax rate being paid by the company. This may differ from the nominal tax rate due to deductions, credits, and other factors.
(Total Tax Expense / Taxable Income) x 100
If a company has a taxable income of $500,000 and a total tax expense of $150,000, its effective tax rate would be 30%.