Reading 38, CFAI Text, Vol4, P.91~115
_ Why taxes are ignored in calculations of DOL/DFL/DTL ? _
In Exhibit 1 (P.92), Exhibit 9 (P.103), Exhibit 10 (P.104), and Exhibit 13 (P.108), only interest expenses are deducted from operating income (EBIT) to arrive at net income when DOL/DFL/DTL are calculated. It seems to me EBIT - I = EBT (Earning before tax), not “net income”.
However, both interest expenses and taxes are deducted from EBIT to arrive at net income when ROEs are calculated.
Anyone can clarify ? Thanks !