DEFINITION of 'Pretax Operating Income - PTOI'

An accounting term that refers to the difference between a company's operating revenues (from its primary businesses) and its direct expenses (except taxes) tied to those revenues. Pretax operating income excludes non-operating forms of revenue and non-recurring transactions such as capital gains on assets and profits from unrelated investments in other companies (unless its main business is investment in other companies).

BREAKING DOWN 'Pretax Operating Income - PTOI'

Pretax operating income is one of the best barometers for the basic health of a business, because it measures both the revenue and expenses associated with the company's primary business activities. While taxes must ultimately be subtracted from this amount, viewing the company's primary operations on a pretax basis gives its shareholders and decision-makers a clearer picture into the aspects of profitability that the company can control. It's also important to note that the PTOI helps eliminate a false sense of security or panic associated with certain infrequent occurences like lawsuits, gains or losses on currency exchanges, or the appreciation of capital assets. As these are included in the final accounting of a company's profit or loss, they can create a false sense of security or peril.

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