Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Profit Before Tax

What it is:

Profit before tax measures a company's operating and non-operating profits before taxes are considered. It is the same as earnings before taxes.

How it works (Example):

Simplifying things a bit, revenue minus expenses equals earnings. The resulting figure is usually listed on a company's income statement right before taxes are listed. For example, take a look at the income statement for Company XYZ:

In this example, profit before tax is $150,000 while net income is $100,000.

Why it Matters:

Profit before tax provides investment analysts with useful information for evaluating a company’s operating performance without regard to tax implications. By removing the tax factor, profit before tax helps to minimize a variable that may be unique from company to company, in order to focus the analysis on operating profitability as a singular measure of performance. Such analysis is particularly important when comparing similar companies across a single industry.