Before-tax profit use

Before-tax profit margin is used as a way of comparing businesses in the same industry because it eliminates the variable of taxation which can be effected by many things.

The before-tax profit margin is calculated by dividing gross earnings by gross revenues and expressing the result in a percentage. It represents the amount of sales revenue that a company earns as pre-tax profits.

If a company earns $200,000 (before-tax) on total revenues of $5 million, the before-tax profit margin is 4% ((.2/5) X 100).