DEFINITION of 'Pretax Rate Of Return'
The rate of return on an investment that does not take the taxes the investor must pay on this return. Because individuals' tax situations differ and different investments attract varying levels of taxation, the pretax rate of return is the measure most commonly cited for investments in the financial world.
BREAKING DOWN 'Pretax Rate Of Return'
Since dividends on stocks may be taxed at a different level from interest income or capital gains, for example, the pretax rate of return enables comparisons to be made across different asset classes. However, it is the aftertax rate return that is most important to investors.
For example, assuming a capital gains tax rate of 15%, a stock that provides a 5% pretax rate of return would have an aftertax rate of return of 4.25%. However, suppose that a municipal bond that is taxexempt and has a pretax return of 4.25% and would therefore also have the same aftertax rate of return. In this case, an investor may choose the municipal bond because of its greater degree of safety and the fact that its aftertax return is the same as that of the more volatile stock, despite the latter having a higher pretax rate of return.

Pretax Earnings
A company's earnings after all operating expenses, including ... 
AfterTax Real Rate Of Return
The actual financial benefit of an investment after accounting ... 
Pretax Profit Margin
A company's earnings before tax as a percentage of total sales ... 
Return
The gain or loss of a security in a particular period. The return ... 
AfterTax Return On Assets
A profitability measure that indicates how well a company uses ... 
AfterTax Return On Sales
A profitability measure that indicates how well a company uses ...

Term
What's a Real Rate of Return?
A real rate of return is an annual percentage investment return thatâ€™s adjusted for inflation, taxes or other factors. 
Markets
Profitability Indicator Ratios: Effective Tax Rate
By Richard Loth (Contact  Biography)This ratio is a measurement of a company's tax rate, which is calculated by comparing its income tax expense to its pretax income. This amount will often ... 
Bonds & Fixed Income
Calculating the TaxEquivalent Yield
Taxequivalent yield is the pretax yield a taxable bond must possess for its yield to equal that of a taxfree municipal bond. 
Fundamental Analysis
Explaining Expected Return
The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome. 
Investing
4 Benefits of Holding Stocks for the Long Term
Discover some of the benefits that come from buying and holding stocks for longer periods of time, such as tax savings and risk minimization. 
Taxes
Capital Gains Tax 101
Find out how taxes are applied to your investment returns and how you can reduce your tax burden. 
Term
What's a Return of Capital?
A return of capital is an investment return that is not considered income. 
Taxes
AfterTax Balance Rules For Retirement Accounts
Accumulating posttax assets can work to your advantage. Find out how. 
Savings
Explaining Tax Returns
A tax return is the form or forms used to file income taxes with the IRS. 
Personal Finance
3 Ways To Avoid The Dividend Tax Hike
Find out how you can offset the potential tax hikes.

Do companies measure their cost of debt with before or aftertax returns?
Understand the before and aftertax calculations of cost of debt capital and how each is useful in deciding between funding ... Read Answer >> 
How does the required rate of return affect the price of a stock, in terms of the ...
First, a quick review: the required rate of return is defined as the return, expressed as a percentage, that an investor ... Read Answer >> 
What are some of the limitations of only looking at the rate of return for an investment?
Learn why only reviewing the rate of return for an investment poses a risk to the investor and what additional factors should ... Read Answer >> 
How is the expected market return determined when calculating market risk premium?
Find out how the expected market return rate is determined when calculating market risk premium and how these figures are ... Read Answer >> 
What's the difference between absolute and relative return?
Knowing whether a fund manager or broker is doing a good job can be a challenge for some investors. It's difficult to define ... Read Answer >> 
What is the difference between yield and rate of return?
Read about the differences between yield and rate of return. See why many novice investors often struggle more with the concept ... Read Answer >>