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Financial Statement AnalysisModule 9 of 9

Analysis of Income Taxes

6

Concepts

3

Formulas

1

Decisions

3

Quiz Questions

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Key Concepts

6 concepts covered in this module.

Taxable vs Accounting Income

Accounting income follows GAAP/IFRS; taxable income follows tax law. Differences can be temporary or permanent.

Temporary Differences

Reverse over time. Taxable temporary diff → DTL. Deductible temporary diff → DTA. Example: accelerated tax depreciation.

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Formulas

3 essential formulas for this module.

Tax Expense

Tax Expense = Taxes Payable + ΔDTL - ΔDTA

Where: Income statement tax charge

Effective Tax Rate

ETR = Tax Expense / Pre-tax Income

Where: Actual rate after all adjustments

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Decision Frameworks

1 decision frameworks to guide your analysis.

Will a DTL actually reverse?

  • If company is shrinking: DTL will reverse (tax payment due)
  • If growing: DTL may never reverse (new DTLs replace old ones)

Mind Map

Visual overview of how concepts connect in this module.

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Taxable vs Accounting Income

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Answer
Accounting income follows GAAP/IFRS; taxable income follows tax law. Differences can be temporary or permanent.
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