Financial Statement Analysis
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 Profitability Ratios Formula
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 Profit Margin
 Profit Margin Formula
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 Gross Profit Percentage
 Operating Profit Margin Formula
 EBIT Margin Formula
 Operating Income Formula
 Net Profit Margin Formula
 EBITDA Margin
 Degree of Operating Leverage Formula (DOL)
 NOPAT Formula
 OIBDA
 Earnings Per Share
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 Basic EPS vs Diluted EPS
 Return on Equity (ROE)
 Return on Equity Ratio
 Return on Capital Employed (ROCE)
 ROCE Formula (Return on Capital Employed)
 Return on Invested Capital (ROIC)
 Return On Investment (ROI)
 Rate of Return on Investment
 Return on Sales
 ROIC Formula (Return on Invested Capital)
 Return on Investment Formula (ROI)
 ROIC vs ROCE
 ROE vs ROA
 CFROI
 Cash on Cash Return
 Return on Total Assets (ROA)
 Return on Total Assets Formula
 Return on Average Capital Employed
 Capital employed Employed
 Return on Average Assets (ROAA)
 Return on Average Equity (ROAE)
 Return on Assets Formula
 Return on Equity Formula
 DuPont Formula
 Net Interest Margin Formula
 Earnings Per Share Formula
 Diluted EPS Formula
 Contribution Margin Formula
 Unit Contribution Margin
 Revenue Per Employee Ratio
 Operating Leverage
 EBIT vs EBITDA
 EBITDAR
 Capital Gains Yield
 Tax Equivalent Yield
 LTM Revenue
 Operating Expense Ratio Formula
 Overhead Ratio Formula
 Variable Costing Formula
 Capitalization Rate
 Cap Rate Formula
 Comparative Income Statement
 Capacity Utilization Rate Formula
 Total Expense Ratio Formula
 Markup
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 Ratio Analysis (17+)
 Liquidity Ratios (29+)
 Turnover Ratios (17+)
 Efficiency Ratios (7+)
 Dividend Ratios (9+)
 Debt Ratios (26+)
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Tax Equivalent Yield Formula
The first question may be why should you use this formula? And the answer is this formula will help you compare the yield between a taxfree investment and a taxed investment.
Here’s the formula –
Example of Tax Equivalent Yield Formula
Let’s take another example to Tax Equivalent Yield Calculation.
Mrs. Olivia is new in the investment world. She wants to find out whether she should go for taxed investments or taxfree investments. She finds out that the taxed investments pay out the yield of 12% on an average. On the other hand, taxfree investments pay 8% on an average. The prevalent tax rate is 35%. You need to guide Mrs. Olivia by choosing which investment would be more beneficial for her.
By using the formula, we get –
 Tax Equivalent Yield = Tax Free Yield / (1 – Tax Rate)
 Or, Tax Yield = 8% / (1 – 35%)
 Or, Tax Yield = 0.08 / (1 – 0.35)
 Or, Tax Yield = 0.08 / 0.65 = 0.1230 = 12.3%.
From the above calculation, we are clear that Mrs. Olivia certainly needs to invest in taxfree investments and not taxed investments.
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Explanation
As you can see the formula compares between the taxfree yield and the taxed yield. In the formula, there are thus two components.
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 The first component is the taxfree yield. To find out the taxfree yield, all you need to do is to look at the yield of municipal bonds. These bonds are generally issued by the government and you don’t need to pay any tax for the return you earn from your investment.
 The second component of the formula is (1 – Tax rate). (1 – Tax rate) would help you find out the yield if it is being taxed. The reason we use this in the denominator is to find out how beneficial it is to invest in the taxed investments.
By using the formula, you will understand actually how much yield you would earn if you need to pay taxes on your taxfree investments. That will keep the yield at a similar level (both investments are taxed) and you would be able to find out whether the taxed investment is a good deal or not.
Use of Tax Yield Equivalent Formula
Investors should use this formula to find out whether it is prudent to pay higher taxes for investing in the taxed investments.
Let’s understand this by using a simple example.
Let’s say that Mr. Ramesh has decided to look at both taxed investments and taxfree investments. The idea is to reduce the tax payment as much as he can.
He finds out that the taxed investment offers a 9% yield. And a taxfree investment offers him 6% yield. And let’s say that the tax rate is 40%.
To find out, he uses the tax yield.
By using the formula, he gets –
 Tax Yield = Tax Free Yield / (1 – Tax Rate)
 Or, Tax Yield = 6% / (1 – 40%)
 Or, Tax Yield = 0.06 / (1 – 0.40)
 Or, Tax Yield = 0.06 / 0.60 = 0.1 = 10%.
So, Mr. Ramesh finds out that taxed investment isn’t a good deal and he should go for taxfree investments.
Tax Equivalent Yield Calculator
You can use the following Tax Equivalent Yield Calculator.
Tax Free Yield  
Tax Rate  
Tax Equivalent Yield Formula =  
Tax Equivalent Yield Formula = 
 

Tax Equivalent Yield Formula in Excel (with excel template)
Let us now do the same example above in Excel.
This is very simple. You need to provide the two inputs of Tax Yield and Tax Rate.
You can easily find out the tax equivalent in the template provided.
Tax Equivalent Yield Formula Video
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