How to Calculate Pre-Tax Profit

Step 1

Calculate gross profit by subtracting the cost of goods sold from income. Cost of goods sold consists of expenses such as materials, subcontractors, direct labor and other job costs directly related to the end product. Cost of goods sold is not relevant in professional or service-related businesses.

Step 2

Subtract the company’s selling, general and administrative expenses from the calculated gross profit. Selling, general and administrative expenses include rent, utilities, office expenses, officer and office payroll and related payroll taxes. The resulting value represents EBITDA, or earnings before interest expense, taxes, depreciation and amortization.

Step 3

Subtract interest expense, depreciation and amortization from EBITDA to arrive at earnings before taxes, or pre-tax profit.