What best describes an after-tax return?

An after-tax return refers to the amount of profit or return that an investor retains after accounting for taxes owed on that return. This measurement is critical for investors since it provides a more accurate reflection of how much they actually earn from their investments, allowing for better decision-making regarding portfolio allocations.

Calculating after-tax returns considers all applicable taxes—such as capital gains taxes on profits from asset sales or ordinary income taxes on interest and dividends—making it a holistic view of investment performance. By focusing on the net benefit after tax obligations, investors can better assess the effectiveness of their investment strategies and compare different investment options more meaningfully.

The other choices fail to accurately capture the essence of after-tax return. Revenue from investments before deductions does not factor in the crucial aspect of tax liabilities. Gains from undistributed earnings focus on earnings that have yet to be realized and do not address the actual returns after taxes. Initial profit from an investment does not consider how taxes will affect the ultimate take-home amount, which is essential for understanding true profitability.