Profit before tax measures a company’s profits before it pays corporate income tax.
Also referred to as earnings before tax, profit before tax equals revenue minus all expenses, excluding the tax that’s owed.
Suppose Cosmopolitan Corporation reports total sales revenue of Rs.2,000,000. It subtracts all interest and operating expenses, including rent and utilities, that total Rs.1,500,000. It leaves its Rs.300,000 corporate tax bill in the equation to come up with a profit before tax of Rs.500,000. Its net income is Rs.200,000.
Investors frequently review a company’s profits when looking at an opportunity, but tax laws can vary widely between jurisdictions. By considering profits before taxes are removed, investors can eliminate a variable that may be quite different between two companies, and that impacts their profits in different ways. It’s especially useful when comparing companies across one industry.
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