Monday, 6 February 2012

Corporate Taxes

Back in the 1940s Graham suggested that to ensure that management is honest about earnings, corporations should make income tax statements available to investors upon request.

  • If the company paid taxes on income, then it is genuine income.
  • If the company didn't, there must be a logical reason, such as a tax write-off or the use of some type of tax credit.  

Corporate taxes have become progressively complex over the years, and only the most dedicated investors - and ones with a lot of time to kill - would care to pore over corporate tax statements.

Fortunately, many corporations now include summary tax information in their annual reports to shareholders.

Many investor information services also supply simplified income tax information in their stock reports.

Reporting of earnings on an after-tax basis is standard practice and to most people, the "real bottom line" is the profits after tax.

When the company reported an effective tax rate that is lower than the normal, you may wish to know the reasons for this.  Perhaps, the company has a tax write-off or tax credit that year.

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