Dear Sir, I have a doubt about - A higher/increase value for the tax burden implies that the company can keep a higher percentage of its pretax profits, indicating a lower tax rate. So its a good thing as ROE increases ? because company can keep higher profits with less tax rate ?? For Interest burden - Would Higher/Increase in value be positive sign for ROE or Lower value would be negative?? please clarify this doubt if anyone knows and sure about it??? Thanks,
The tax burden reflects the relation of after-tax profits to pretax profits. The increase in ratio indicates decline in taxes (or decline in taxes as a % of pre-tax profits). A higher value for the tax burden implies that the company can keep a higher percentage of its pretax profits, indicating a lower tax rate. A decrease in the tax burden ratio implies the opposite (i.e., a higher tax rate leaving the company with less of its pretax profits). Interest burden is EBT / EBIT. It shows the percentage of EBIT left over after deduction of interest expense. In order to achieve a high ROE, a company must reduce its interest expense such that the EBT/EBIT ratio is high (or interest burden is high). IFT Support Team
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Thanks a lot. it is very useful to me.
Thanks a lot Asif Sir.
You are most welcome. We are glad that you like FIT videos.
IFT Support Team
do we need to memorize the segment ratios formulas?
Sir do we need to memorise credit analysis formulas ?
Yes, you should.
IFT Support Team
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Dear Sir,
I have a doubt about - A higher/increase value for the tax burden implies that the company can keep a higher percentage of its pretax profits, indicating a lower tax rate. So its a good thing as ROE increases ? because company can keep higher profits with less tax rate ??
For Interest burden - Would Higher/Increase in value be positive sign for ROE or Lower value would be negative?? please clarify this doubt if anyone knows and sure about it???
Thanks,
The tax burden reflects the relation of after-tax profits to pretax profits. The increase in ratio indicates decline in taxes (or decline in taxes as a % of pre-tax profits). A higher value for the tax burden implies that the company can keep a higher percentage of its pretax profits, indicating a lower tax rate. A decrease in the tax burden ratio implies the opposite (i.e., a higher tax rate leaving the company with less of its pretax profits).
Interest burden is EBT / EBIT. It shows the percentage of EBIT left over after deduction of interest expense. In order to achieve a high ROE, a company must reduce its interest expense such that the EBT/EBIT ratio is high (or interest burden is high).
IFT Support Team
@@IFT-CFA Thankyou sir for explanation. Very Highly explained !