Pre-tax Earnings
Categories: Accounting
The Enemizer, maker of digestive aids, prints on its quarterly report $100M of revenues and $20M in operating profits. They will owe about $6M in taxes, but their pre-tax earnings are $20M.
Essentially, pre-tax earnings are operating profits. So why delineate? Like...why even think about a pre-tax number? Because taxes change from year to year or at least era to era. Different companies have different capital structures, some with tons of cash (and interest income), some with tons of debt (and big time interest payments). And companies do one-off events, like acquire things that have big write-offs or net operating losses with them, which cloud the real earnings power of a company.
So looking at pre-tax earnings, along with after-tax, gives a kind of dual-lens view into the company's health. They're the earnings sans tax, sans Ireland freebie (Apple saves billions a year in tax costs by being incorporated in Ireland), sans grief.
See: Operating Income.
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Finance: What are operating profits, net...63 Views
finance a la shmoop.what are gross profits operating profits and net
profits? well the greatest fishing company that walks the earth or swims
the ocean made a fortune last year from selling nets. catching things like well [fish is caught from the ocean]
me. but that's really a different thing and no Bueno. leave us alone. in an
accounting sense net profits come after operating profits that come after gross
profits .and the net thing is well pretty much taxes. so here's an income statement
yeah yeah revenues and then there's the cost of the stuff you're selling. okay
fine. we'll note the nets only cost a little bit to make and you sell them for
a fortune .way overpriced if you ask me. like whatever happened to line fishing
anyway lazy humans. so you have your revenues then your cost of goods sold.
all right well if you subtract those cogs from the revs you get your gross [income statement pictured]
profits. yeah gross just gross and sad frankly like why not eat more chicken
seriously. anyway .so then you have your costs of operating the business you know
overhead. secretaries and insurance and rent and fish-smell deodorizer. and then
you have operating profits after you subtract. them yep you subtract those
right from gross profits. get operating. so you made some number let's call it 10
million bucks why not .you know how many of my brethren died to give you that
money right? blood money. talk to Leo to see about it.
maybe he'll make a movie . anyway let's say the tax rates 30% well you'd pay 3
million in taxes on that 10 million of operating profit to then have net
profits of seven million dollars. lots of profits .there people. yeah hope you can [equation]
sleep at night.