How to Calculate Estimated Pretax Profit on Sales

Calculating pretax profit requires some basic financial numbers.

Businesses use pretax profit to measure their success. Pretax profit gives businesses a clear picture of their financial health by ignoring taxes. Unlike net profit, which includes all taxes, pretax profit lets investors see how well the company actually performs its core functions, rather than how well it manages taxes. Calculating pretax profit involves basic financial numbers from the company's income statement.

Things You'll Need

• Revenue
• Cost of goods sold
• Selling, general and administrative expenses
• Interest expense
• Depreciation and amortization expense

Instructions

Calculate Pretax Profits

1. Calculate the company's gross profits by deducting the cost of goods sold from revenue. Companies that do not sell merchandise do not have cost of goods sold.

2. Deduct the company's selling, general and administrative expenses from its gross profits. This yields earnings before interest, taxes, depreciation and amortization (EBITDA).

3. Deduct the interest expense, the depreciation expense and the amortization expense from the EBITDA. This yields the pretax profit.

References

• Investopedia: Gross Profit Definition
• Cardinal Money Management: EBITDA
• Accounting for Management: Cost of Goods Sold Definition
• Investopedia: Profit Before Tax

Resources

• "Twin Cities Business"; It's All About EBITDA (Duh!); Mark Sheffert; July 2008