Profit after-tax definition
/What is Profit After-Tax?
Profit after-tax is the earnings of a business after all income taxes have been deducted. This amount is the final, residual amount of profit generated by an organization. The profit after-tax figure is considered the best measure of the ability of an entity to generate a return, since it incorporates both operating income and income from other sources, such as interest income.
Presentation of Profit After-Tax
A reporting entity’s profit after-tax appears at the bottom of the income statement. A sample presentation appears in the following exhibit.
Who Uses Profit After-Tax Information?
The profit after-tax margin is closely watched by investors to see if the income-generating ability of a firm is changing over time. If so, this could be considered a valuation indicator that may result in a change in the stock price. Taxation authorities also review profit after-tax information, especially in comparison to before-tax income. If there is little difference between these two numbers, then tax auditors may examine whether the reporting entity is improperly paying excessively low taxes.
After-Tax Profit per Share
If a company is publicly-held, it is required to report profit after-tax on a per share basis. This information appears on the face of the income statement. This requirement comes from the Securities and Exchange Commission, which believes that this information is useful for investors who are evaluating the financial results of a reporting entity.
Related AccountingTools Courses
The Interpretation of Financial Statements
Example of Profit After-Tax
ABC International reports $1 million of net sales in its most recent quarter, along with $100,000 of before-tax profit. The company is subject to a 21% income tax rate, so its reported profit after-tax is $79,000.
Terms Similar to Profit After-Tax
Profit after-tax is also known as net profit after tax.