Metric Explainer: Profit After Tax (PAT)
The final profit left for shareholders after paying all expenses — operating costs, depreciation, interest on loans, and income tax. "PAT matlab company ka s...
Simple definition
The final profit left for shareholders after paying all expenses — operating costs, depreciation, interest on loans, and income tax.
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"PAT matlab company ka seedha bottom line — sab kharcha nikaal ke shareholders ke liye kitna bacha. Yeh hi EPS aur ROE ka basis hai."
Why it matters
- The bottom line — everything in a P&L flows down to PAT
- Basis for EPS and PE ratio — the two most-watched metrics by investors
- Dividend source — companies can only distribute PAT as dividends
- Retained earnings — PAT not distributed becomes reserves, growing book value
Formula
PAT = PBT − Income Tax Expense
Full breakdown:
PAT = Revenue − COGS − Operating Expenses − D&A − Interest − Tax
How to read the income cascade
Good range
| Scenario | Interpretation |
|---|---|
| PAT growing faster than revenue | Margins improving — operating leverage |
| PAT growing in line with revenue | Stable business — predictable |
| PAT growing slower than revenue | Margin compression — costs rising faster |
| PAT declining while revenue grows | Serious issue — costs out of control |
| Negative PAT | Loss-making — check if temporary or structural |
Consolidated vs Standalone PAT
| Type | What it includes | When to use |
|---|---|---|
| Standalone | Only parent company | Simple businesses with no subsidiaries |
| Consolidated | Parent + all subsidiaries | Always prefer this for companies with subsidiaries |
Minority Interest
In consolidated PAT, subtract minority interest to get profit attributable to equity holders of the parent. This is what EPS is calculated on.
Common mistakes
Mistakes to avoid
- Ignoring exceptional items — Large one-time gains or losses (asset sales, write-offs) can distort PAT. Always check "adjusted" PAT
- Confusing with cash — PAT includes non-cash items (depreciation addback, deferred tax). CFO is the cash version
- Year-end tax adjustments — Q4 PAT often spikes or drops because of annual tax true-ups
- Not checking quality — High PAT driven by Other Income (not operations) is lower quality
Real example: Exceptional items impact
| Company | Reported PAT FY24 | Exceptional item | Adjusted PAT |
|---|---|---|---|
| Vedanta | ₹9,800 Cr | +₹4,200 Cr (asset sale) | ₹5,600 Cr |
| Yes Bank | ₹200 Cr | −₹1,500 Cr (provisions) | ₹1,700 Cr (pre-provision) |
Vedanta's reported PAT is inflated by a one-time asset sale. Yes Bank's PAT is depressed by one-time provisions. Always normalise.
Red flags
- PAT negative for 2+ consecutive years — structural loss
- PAT growing only because of Other Income, not operating profit
- Large gap between PAT and CFO — check accruals and receivables quality
- PAT boosted by tax reversals or deferred tax credits — unsustainable
Related metrics
- Net Margin — PAT as a percentage of revenue
- EPS — PAT per share
- ROE — PAT relative to equity employed
- CFO/PAT Ratio — Cash quality check on PAT