Normalized tax rate should basically reflect the company’s statutory tax rate as adjusted for any impact of permanent differences between taxable operating income and EBIT as presented in the financial inputs. Temporary differences between taxable operating income and EBIT may be dealt with by incorporating cash flow impacts of deferred tax assets and liabilities in the respective cash flow statement line items.

Alternatively, for a simplified approach, normalized tax rate can be representative of the cash tax rate of the company, so long as any material cash tax impacts from temporary differences (changes in deferred tax assets and liabilities) are reversed in subsequent periods.

See our Glossary for additional information related to the financial terminology in this article and throughout our Help Center.