what is a pretax profit margin 
the pretax profit margin is a financial accounting tool used to measure the operating efficiency of a company it is a ratio of the percentage of revenues that are turned into profits or how many cents a business pockets from each dollar of sale before deducting taxes the pretax profit margin is widely used to compare the profitability of companies within the same industry understanding pretax profit marginmost companies aim to generate as much profit as possible that s usually what the people in charge are tasked with doing and what investors funding its activities demand one of the most common and useful measures to gauge corporate profitability is to look at profit margins consistently high pretax profit margins are a sign of a healthy company with an efficient business model and pricing power low pretax profit margins suggest the opposite to boost profitability management teams must strike a balance between increasing sales and reducing costs pretax profit margins provide an indicator of how successful companies are at achieving this goal as a result pretax profit margins are closely watched by analysts and investors and frequently referred to in financial statements the pretax profit margin offers investors one of the best ways to compare competing companies as well as those with significant differences in size and scale in the same industry generally businesses that regularly deliver higher pretax profit margins than their peer group can be thought of as better run pretax profit margins can vary considerably by sector and as a comparative tool work best when pitching a company against others in its industry or its past performance 