What Is Pre-Tax Return on Net Worth
Pre-tax return on net worth measures how much pre-tax income a business or investment generates relative to its net worth. It shows the efficiency of using equity capital before income taxes are deducted.
How to Calculate Pre-Tax Return on Net Worth
Divide pre-tax income by average net worth and multiply by 100. Average net worth is usually calculated as the sum of beginning and ending net worth divided by two. A higher ratio indicates stronger equity efficiency.
Why Pre-Tax Return on Net Worth Matters
This metric helps investors and managers compare performance across companies with different tax structures. Because it excludes taxes, it focuses on operating and investment results before the tax code affects the bottom line. For more on return metrics, see Investopedia: Return on Net Worth.
