Why can pre-tax profit be far bigger than operating profit?

Operating profit and pre-tax profit sit a few lines apart on the profit and loss account. Everything between them is about money, not trading.

Operating profit is what a company makes from what it does: selling broadband, water, sandwiches. It is turnover less the cost of running the business.

Pre-tax profit starts from operating profit and then adds or takes away money that comes from how the company is owned and funded. Interest on its borrowings comes off. Interest it earns on cash or on loans to other companies is added. So are dividends from companies it owns. Gains from selling investments are added and write-downs of investments come off.

For most trading companies the two figures are close. They most often move far apart in two kinds of company: a parent company that owns other companies, where dividends from below can dwarf its own trading; and a company with large borrowings, where interest swallows much of what it makes from trading.

Sky UK Limited is the company that sells Sky TV, broadband and mobile to customers in the UK. In 2025 it took £10,541m in revenue and spent £10,534m running the business, leaving an operating profit of £7m: 7p from every £100 of sales.

The accounts say why the trading profit is so small: "The operating profit / (loss) is driven by a number of recharges by other entities in the Sky Group, resulting in other group companies recognising the Sky Group's operating profit." In other words, other Sky companies charge Sky UK for what they provide, and the trading profit is booked in those companies instead.

Profit made elsewhere in the group can come back up as dividends. Sky UK owns other Sky companies, and in 2025 they paid it £1,254m in dividends. With £363m of interest on loans it had made to other group companies, its investment income was £1,617m. Take off £186m of finance costs and £507m of losses on investments, mostly write-downs of the value of its subsidiaries and its streaming joint venture, and pre-tax profit comes to £931m: £8.83 from every £100 of sales.

The year before shows the same lines can push the other way. In 2024 Sky UK received £5,626m of dividends from its subsidiaries, but had £5,409m of net losses on its investments, so a £112m operating loss became a pre-tax profit of only £253m.

Yes, and for a company with heavy borrowings it usually is. Thames Water made £1,361.0m of operating profit in the year to March 2026 on turnover of £3,756.5m. Its pre-tax profit was £226.4m, about a sixth of that.

The gap is the cost of its debt. Finance expense was £970.0m, set against £146.8m of finance income. Losses on financial instruments, such as the swaps it uses to manage interest and currency on its debt, took off another £280.8m, and a further £30.6m was written off a loan to its parent company.

Per £100 of turnover, Thames Water made £36.23 from trading and kept £6.03 as pre-tax profit. Its interest cost before one-off items, £831.8m, was £22.14 of every £100 it billed.

Dividends from inside the group. When a parent company's pre-tax profit is much bigger than its operating profit, check the investment income note. Dividends from subsidiaries are profit those companies made, moved up the group. They are not new money for the group as a whole, and the amount can swing from year to year as Sky UK's did, from £5,626m to £1,254m.

One-off gains. Selling a business can lift pre-tax profit in a single year. ITV's operating profit in 2024 was £318m, but its pre-tax profit was £521m, helped by £212m of profit on selling stakes in other businesses. In 2025, with no such sale, operating profit was £363m and pre-tax profit £338m.

Interest. If pre-tax profit is well below operating profit, the company is paying for its borrowings. Compare finance costs with turnover to see how much of every £100 of sales goes to lenders.

Write-downs. A fall in the value of investments can turn a trading profit into a pre-tax loss. These are accounting charges, not cash leaving the company, but they tell you an investment is now worth less than the value it was carried at.

Both are on the profit and loss account, also called the income statement. Operating profit comes after the running costs. Profit before taxation comes a few lines below, after the interest and investment lines.

Companies using UK standards follow the formats in company law, which have separate lines for "income from shares in group undertakings" (dividends from subsidiaries), "other interest receivable and similar income", "amounts written off investments" and "interest payable and similar expenses", all between trading and tax. Companies using international standards (IFRS), such as ITV, Greggs and Thames Water, follow IAS 1, which asks for fewer set lines but usually ends up looking similar. Not every company prints an operating profit subtotal, but most large ones do.

The notes to the accounts break each line down. For dividends and interest received, look for a note called investment income or finance income; for interest paid, finance costs or interest payable.