Pre-tax profit is a company's operating profit after interest on debt has been paid (plus any unusual items) -- but before taxes are paid.
A company's pre-tax profit -- also known as "earnings before taxes," "EBT," or "income before provision for income taxes" -- can be found on its income statement. (Your broker can help you sort through income statements -- if you don't have one yet, visit our Broker Center, and we'll help you get started.)
For example, Apple's 2015 annual 10-K filing reveals a pre-tax profit of $72.5 billion:
How to calculate pre-tax profit with net income and tax rate
You can also calculate a company's pre-tax profit if you know its net income and tax rate.
Net income is a company's earnings after taxes have been taken out. To get back from net income to pre-tax profits, we just have to put those taxes back in.
Here's net income:
Net Income = Earnings Before Taxes * (1-Effective Tax Rate)
With a little of arithmetic, we get
Earnings Before Taxes = Net Income / (1-Effective Tax Rate)
Now back to our example. In 2015, Apple had net income of $53.4 billion and an effective tax rate of roughly 26.1%. So its pre-tax profit was approximately $72 billion, which corresponds to the amount listed in its income statement.
Apple's Earnings Before Taxes = $53,394 million / (1-26.1%)
Another way to calculate pre-tax profit
You can also calculate a company's pre-tax profit by subtracting a company's interest expense and adding or subtracting any unusual items from its operating income.
Here's how that would look in the example above:
Earnings Before Taxes = Operating Income +/- Interest Expense and Other Items
Apple's Earnings Before Taxes = $71,230 million + $1,285 million = $72,515 million
This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Email us at firstname.lastname@example.org. Thanks -- and Fool on!
The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.