Pretax Profit Ratio is

$$Pretax\quad Profit\quad Ratio=$$$$\frac { Profit\quad Before\quad Taxes(PBT) }{ Net\quad Sales} $$

####

####

**a kind of Profitability Ratio**that determines the**relative relation between Pretax profit and Revenue from Operations.**It indicates the Pretax Profit in Net Sales.$$Pretax\quad Profit\quad Ratio=$$$$\frac { Profit\quad Before\quad Taxes(PBT) }{ Net\quad Sales} $$

**Significance and InterpretationWhere, PBT or Profit Before Tax = Net Sales – (Cost of Goods Sold + Operating Expenses + Depreciation/Amortization + Interest Expense)**- And Net Sales is the Total Revenue from Sales.
__Pretax Profit Ratio multiplied by 100 provides the Pretax Profit Margin in percentage terms.__

**Pretax Profit Margin**of a Company is a**narrower measure of profit as compared to Gross Profit Ratio and Operating profit Ratio.**Pretax Profit Margin considers all necessary expenses incurred by company including the Depreciation, Amortization, and Interest Expenses**Pretax Profit Margin of a company is always less than the Gross profit Margin and Operating profit Ratio due to the addition of extra cost elements.**However,**an increase in Gross Profit Ratio and/or Operating Profit Ratio may or may not have a similar impact on the Pretax Profit Margin.**This implies that the company is not having much Interest Payment and the effect of Depreciation is also less.__If the increase in Pretax Profit Margin > Increase in Gross Profit Margin:__This implies that the company has a significant interest payable and/or the Depreciation is having a considerable impact.__If the increase in Pretax Profit Margin < Increase in Gross Profit Margin:__

Gross Profit Ratio > Operating Profit Ratio > Pretax Profit Ratio

### Examples

####
**Example 1: **

**Given below are few details of M/S XYZ Ltd., use them an calculate the Pretax Profit Ratio for M/S XYZ Ltd.**

Particulars | Amount (in Rs.) |
---|---|

Revenue from Sales (Cash) | 250000.00 |

Revenue from Sales (Credit) | 25000.00 |

Cost of Labour | 45000.00 |

Material Cost | 45000.00 |

Salary Expense | 90000.00 |

Rent of Premises | 40000.00 |

Insurance Expenses | 15000.00 |

Depreciation | 15000.00 |

Interest Expenses | 5000.00 |

####
**Solution:**

**Cost of Goods Sold =**Cost of Labour + Material Cost

**⇨**Rs. 90000

**Operating Expenses =**Salary Expense + Rent of Premises + Insurance Expenses

**⇨**Rs. 145000

**Net Sales Revenue =**Cash Revenue from Sales + Credit Revenue from Sales

**⇨**Rs. 275000

**PBT or Profit Before Tax =**Net Sales – (Cost of Goods Sold + Operating Expenses + Depreciation/Amortization + Interest Expense)

**⇨**275000 - (90000 + 145000 + 15000 + 5000)

**⇨**Rs. 20000.00

**Pretax Profit Ratio =**PBT / Net Sales Revenue

**⇨**20000 / 275000

**⇨**4/55

**Hence, Pretax Profit Ratio = 4/55 or 0.0727 or 7.27%**