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Before-tax income, also known as pretax income, is the amount of income the company has generated before it pays Federal, state, and local income taxes. Before-tax income is a useful financial indicator because income taxes, while a cost of doing business, is substantially determined by governments and somewhat out of the control of company managements. Moreover, unlike net income, before-tax income excludes extraordinary (or one-time) items. Thus before-tax income can often give a better sense than net income of the company's core business strength. Before-tax income is often expressed as a percentage of revenue, also known as the pretax margin. Expressed as such a percentage, before-tax income can be usefully compared among companies with similar activities and of similar size. |
