What does ETR stand for?

What does ETR stand for?

• A. Estimated Tax Rate
• B. Effective Tax Rate
• C. Economic Tax Rate
• D. Ephemeral Tax Rate

Answer: (B)

ETR stands for Effective Tax Rate, a measure of the taxes a company actually pays relative to its pretax earnings. It’s calculated as tax expense divided by pretax income and reflects the impact of credits, deductions, and cross‑border taxes on the company’s true tax burden. This is the rate analysts use in models to forecast taxes because it shows the real taxes payable against earnings, rather than the statutory rate that would apply to the next dollar of income. For example, if pretax income is 100 and tax expense is 25, the ETR is 25%. This differs from the marginal statutory rate, which ignores credits and deductions. The other terms listed aren’t standard in finance practice, so they aren’t used to describe this concept.

ETR stands for Effective Tax Rate, a measure of the taxes a company actually pays relative to its pretax earnings. It’s calculated as tax expense divided by pretax income and reflects the impact of credits, deductions, and cross‑border taxes on the company’s true tax burden. This is the rate analysts use in models to forecast taxes because it shows the real taxes payable against earnings, rather than the statutory rate that would apply to the next dollar of income. For example, if pretax income is 100 and tax expense is 25, the ETR is 25%. This differs from the marginal statutory rate, which ignores credits and deductions. The other terms listed aren’t standard in finance practice, so they aren’t used to describe this concept.