Income before taxes

Income before taxes, also called pre-tax income or EBT, is the profit remaining after all operating costs, interest expense, and other non-operating items have been deducted from revenue, but before the income tax charge is applied. It's a simple but important subtotal, since it represents the full economic result of the business and its financing decisions in a given period, with only the tax authority's claim still to come. The formula is:

A company with significant debt will show a meaningful step down from operating income to EBT, while a debt-free company with cash on the balance sheet may show a step up due to interest income.

EBT is also the starting point for calculating the effective tax rate, income tax expense divided by income before taxes, which analysts use to assess whether a company's tax burden is in line with the statutory rate or whether it's benefiting from tax credits, deferred tax assets, or favourable jurisdictional structuring. Because it sits just above the final tax line, income before taxes is the last point on the income statement where the operating and financial performance of a business can be evaluated before statutory obligations distort the picture.

Financial data sites often label it EBT, incl. unusual items, meaning the figure includes one time items such as asset writedowns, restructuring charges and gains or losses on selling investments. A version that excludes unusual items removes them, which makes years easier to compare.