Pre-Tax Income = EBIT − Interest Expense (or) Pre-Tax Income = Net Income + Income Tax Expense
Pre-tax income is earnings after interest but before income tax.
What it is
Pre-tax income, also called earnings before tax (EBT), is the profit remaining after every expense — including interest — has been deducted, but before income tax. It is the line on the income statement directly above net income. From pre-tax income you subtract income-tax expense to arrive at net income.
Why it matters
Pre-tax income shows how profitable the business is independent of its tax bill, which can swing year to year due to credits, loss carryforwards, or one-off items. Comparing pre-tax income to the tax expense also reveals the company's effective tax rate.
How it's calculated
Take EBIT and subtract interest expense (or take net income and add back income-tax expense). The result is the income on which income tax is calculated.
How Quintarthai uses it
Pre-tax income is shown alongside the full income statement on the Financials 10-yr and Classic View tabs of a company's deep-analysis page — open a company page.
Cross-border note. US federal corporate tax differs from Canadian federal-plus-provincial corporate tax, so two otherwise similar companies can post similar pre-tax income but quite different net income; look at pre-tax income to compare operating-plus-financing performance without the tax-regime distortion.
FAQ
Why look at pre-tax income instead of net income?
Net income mixes in the tax bill, which can be distorted by one-time credits, deferred taxes, or loss carryforwards. Pre-tax income isolates the business and financing performance, making year-over-year and company-to-company comparisons cleaner.
How do I get the effective tax rate from it?
Divide income-tax expense by pre-tax income. For example, $20 of tax on $100 of pre-tax income is a 20% effective tax rate.
Check your understanding
A company reports $100 of pre-tax income and $20 of income-tax expense. What is its effective tax rate?
The effective tax rate is income-tax expense divided by pre-tax income, so $20 / $100 = 20%.