Pre Tax Return on Net Worth

Posted in Finance, Accounting and Economics Terms, Total Reads: 586
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Definition: Pre Tax Return on Net Worth

Pre Tax Return on Net Worth is the rate of return based on the pre-tax income from an investment. It does not take into account the taxes on the earnings.


Pre-tax return on net worth= Pre tax income/net worth of the investment


However, in reality investors has to pay taxes on the earnings that they get from an investment. So, after-tax return is more important for the investors.

 

Example

An investment that gives 20% return on investment would give 120 rupees for every 100 rupees invested. But if a tax of 5% is charged on the earnings. The investor would effectively get 119 on every 100 rupees invested. So after tax rate of return would be 19%.

 

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