What is Pre-Tax Operating Income?
Pre-tax operating income is a company'sbefore . The formula for pre-tax operating income is:
How Does Pre-Tax Operating Income Work?
Let's assume Company XYZ reported the following information for the fiscal year:
Using the formula and the information above, we can calculate that Company XYZ's pre-tax operating income was:
$1,000,000 - $500,000 - $300,000 - $100,000 = $100,000
Why Does Pre-Tax Operating Income Matter?
Pre-tax operating income is a measure of a company's operating efficiency because it only takes into account expenses that are directly related to ongoing business operations. capital structure (even if those companies have the same revenues)., for example, that it does not include interest expense, which is influenced by the company's decisions, nor does it include dividends or nonrecurring items. And notably, it also excludes , which might vary with a company’s
Pre-tax operating income is a non-GAAP measure, meaning that what is included and excluded differs by company and industry. Thus, the definition of a "high" or "low" pre-tax operating income should be made within this context.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
Back in 1986, the U.S. government passed a landmark tax reform act that has had a profound impact on millions of investors. That piece of legislation set up a special tax...Read More →
In my previous trading lessons, I stated that the better you are at technical analysis,...Read More →
Buying a second home before selling the first is a scary proposition. But some move-up buyers living in tight real estate markets have little choice if they want to...Read More →