Understanding PAT
Profit After Tax, or PAT refers to the amount of money a company has earned after the deduction of all taxes and other expenses. It shows how much profit remains after the company has paid all the applicable corporate taxes. PAT also serves as a determining factor for a company’s profitability and financial performance and is further important for investors and shareholders to understand the company’s ability to generate profitable revenues.
Also referred to as Net Operating Profit After Tax (NOPAT) or Net Profit After Tax, PAT highlights the net earnings of the company and is an important metric to understand a company’s profitability and position in the competitive job market that also helps shareholders in making informed decisions.
How to Calculate PAT?
PAT is calculated using the following formula:
Profit After Tax (PAT) = Profit Before Tax (PBT) – Total Taxe Rate
Here,
Profit After Tax: a metric that indicates the profitability of a business
Profit Before Tax: profit earned by the company before tax deduction
Tax Rate: varies depending on the company’s location and industry and is determined according to tax laws.
Importance of PAT
Performance indicator:
- Indicates how a company is managing its expenses and how much profit is being generated after tax fulfillment.
- reveals how much profit is genuinely available to investors and stakeholders, ensuring an accurate assessment of business profitability.
Investment Decisions:
- Investors and analysts use PAT to assess the financial health and performance of a company. A consistent or growing PAT can make a company more attractive to potential investors.
Budgeting and Forecasting:
- Companies use PAT to plan future budgets and financial strategies, ensuring that they have enough resources for expansion, debt repayment, and other financial commitments.
Comparison Between Businesses:
- Comparisons between companies within the same industry that help Investors to understand how much of the revenue is converted into profit. A strong PAT is often seen as a good indicator of future business growth.
