<h2>Pretax Earnings</h2>
<p>Pretax earnings, also known as earnings before tax, refer to a company's profit generated before deducting income tax expenses. It's a crucial metric used to evaluate a company's financial performance and is a key input for calculating various valuation ratios.</p>

<h2>How It Works</h2>
<p>Pretax earnings are calculated by subtracting a company's total expenses (excluding taxes) from its total revenue. The formula is:</p>
<p><strong>Pretax Earnings = Total Revenue - (Total Expenses - Income Tax Expense)</strong></p>
<p>Alternatively, it can be calculated as:</p>
<p><strong>Pretax Earnings = Operating Profit + Income Tax Expense</strong></p>
<p>For example, if a company has total revenue of $100,000, total expenses (excluding taxes) of $70,000, and an income tax expense of $10,000, its pretax earnings would be:</p>
<p><strong>$100,000 - ($70,000 - $10,000) = $40,000</strong></p>

<h2>Why It Matters for Traders</h2>
<p>Pretax earnings matter to traders for several reasons:</p>
<ul>
  <li>It provides a clear picture of a company's operating performance, as it excludes the impact of tax laws and changes in tax rates.</li>
  <li>It's a key input for calculating valuation ratios such as the price-to-earnings (P/E) ratio and the enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio.</li>
  <li>It helps in comparing the financial performance of companies operating in different tax environments.</li>
</ul>

<h2>Example</h2>
<p>Let's say you're trading stocks on the MetaTrader 5 platform provided by STB. You're considering two companies, A and B, with the following financials:</p>
<table>
  <tr>
    <th>Company</th>
    <th>Total Revenue</th>
    <th>Total Expenses (excluding taxes)</th>
    <th>Income Tax Expense</th>
    <th>Pretax Earnings</th>
  </tr>
  <tr>
    <td>A</td>
    <td>$150,000</td>
    <td>$100,000</td>
    <td>$15,000</td>
    <td>$35,000</td>
  </tr>
  <tr>
    <td>B</td>
    <td>$200,000</td>
    <td>$130,000</td>
    <td>$20,000</td>
    <td>$50,000</td>
  </tr>
</table>
<p>Based on pretax earnings, you might prefer Company B as it has a higher operating profit.</p>

<h2>Key Takeaways</h2>
<ul>
  <li>Pretax earnings show a company's operating performance before tax expenses.</li>
  <li>It's calculated by subtracting total expenses (excluding taxes) from total revenue, or by adding income tax expense to operating profit.</li>
  <li>Pretax earnings are a key input for valuation ratios and help in comparing companies' financial performance.</li>
</ul>