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.
