Earnings before taxes.

In plain English

Earnings before taxes, often called pretax income, is operating income adjusted for interest and other non-operating items, measured before income tax expense. It isolates how the business performed before tax rates, credits, and one-time tax items enter the picture. Comparing two companies at the pretax line removes differences in tax rates, foreign structure, and carried-forward losses. Subtract income tax expense from earnings before taxes and you reach net income. Dividing tax expense by earnings before taxes gives the effective tax rate, which often differs from the statutory rate.

01Why it matters

It separates how well the business ran from how well its tax department did, so a company with an unusually low tax bill this year cannot pass that off as operating strength.

02The math, step by step

Say operating income is 800,000 dollars and interest expense is 100,000 dollars, so earnings before taxes is 700,000 dollars. If tax expense is 168,000 dollars, net income is 532,000 dollars and the effective tax rate is 24 percent (168,000 divided by 700,000).

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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