Profit Before Tax (PBT): Definition and Guide

What is PBT?

Profit before tax (PBT), also called earnings before tax (EBT) or pretax profit, is a company’s profit after operating results and interest are accounted for but before income taxes are deducted. It appears on the income statement and shows the amount of profit subject to tax (before tax-law adjustments).

Basic formula:
PBT = Operating Profit (EBIT) − Interest Expense + Interest Income

You can also express a margin:
PBT margin = PBT / Revenue

Why PBT matters

• Isolates the effect of taxes on profitability so stakeholders can compare results without tax distortions.
• Highlights the impact of interest (debt cost) on earnings — differences between EBIT and PBT reveal debt sensitivity.
• Helps estimate the company’s tax liability (subject to tax rules and any credits or adjustments).
• Useful when comparing firms across jurisdictions or capital structures, since taxes and interest vary by country, industry, and financing mix.

How to calculate PBT (step‑by‑step)

1. Start with operating profit (EBIT) from the income statement.
2. Subtract interest expense (cost of debt).
3. Add any interest income (investment earnings).
4. Result = Profit Before Tax (PBT).

Notes:
* For C corporations in the U.S., the federal statutory corporate rate is 21%; pass‑through entities are taxed at individual rates. State taxes and tax‑law adjustments can change the final tax owed.
* Taxable income (the legal basis for tax) may differ from PBT because of tax deductions, non‑deductible items, and other statutory adjustments.

How PBT enhances financial analysis

• Comparing PBT to net income shows the effect of taxes on profit margins.
• PBT margin > net margin because taxes are excluded.
• Analyzing PBT across firms or periods helps identify tax efficiencies, the impact of tax credits (for example, renewable energy investment/production credits), and the influence of financing choices on bottom‑line performance.

PBT vs. related metrics

• EBIT (Earnings Before Interest and Tax): Operating profit before interest and taxes; shows operational performance. PBT = EBIT − Interest + Interest Income.
• EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization): EBIT plus depreciation and amortization; often used as a proxy for operating cash flow and for valuation multiples (e.g., EV/EBITDA). EBITDA excludes noncash charges and may overstate sustainable profitability.
• EBT: Same as PBT (alternative name).

FAQs

Q: Is EBT the same as PBT?
A: Yes — EBT and PBT both mean pretax profit.

Q: What is the difference between PBT and taxable income?
A: PBT is an accounting figure on the income statement. Taxable income is the amount subject to tax under applicable tax law and can differ from PBT because of tax adjustments, deductions, and credits.

Q: How does PBT differ from EBITDA?
A: PBT is after depreciation and amortization (because those are included in EBIT) and reflects interest effects; EBITDA removes depreciation and amortization and is before interest and taxes, so it emphasizes cash‑like operating performance but ignores asset consumption and financing costs.

Bottom line

PBT is a simple but informative metric: it shows a company’s profit before tax by adjusting operating profit for interest. It helps isolate tax and financing effects, making it useful for cross‑company comparisons, margin analysis, and estimating tax exposure. Use PBT alongside EBIT, EBITDA, and net income to get a fuller picture of operational performance, capital structure effects, and after‑tax profitability.