Profit Before Tax

Profit before tax is useful because tax rates differ between companies and change with policy, so comparing at this level removes a distortion that has nothing to do with business performance. The gap between profit before tax and net profit gives the effective tax rate, and a rate far from the statutory one is always worth investigating — it may reflect tax holidays, past losses being set off, or deferred tax movements. In India the shift to the concessional corporate tax regime moved many companies' effective rates sharply, changing net profit without changing operations. Exceptional items usually sit just above this line, so it is not automatically free of one-offs.