What is Profit Before Tax?

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

Profit Before Tax 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:

Profit Before Tax

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

Why Profit Before Tax 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.

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Paul Tracy
Paul Tracy

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