PRETAX PROFIT MARGIN

A company's earnings before tax as a percentage of total sales or revenues. The higher the pre-tax profit margin, the more profitable the company. The trend of the pretax profit margin is as important as the figure itself, since it provides an indication of which way the company's profitability is headed.

For example, suppose that Company A has earnings before tax of $10 million and total sales of $100 million in a given fiscal year. It has a pretax margin of 10%. The profit margin figure also enables profitability to be compared across companies with significant differences in size and scale. Company B, which has $500 million in sales and $40 million in pretax earnings may have substantially higher profitability than company A in dollar terms, but has a lower pretax profit margin of 8%.