Profit after tax (PAT)

Reviewed by Vishnava | Updated on Dec 07, 2022

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Introduction to profit after tax (PAT)

Profit After Tax refers to the amount that remains after a company has paid off all of its operating and non-operating expenses, other liabilities and taxes. This profit is what is distributed by the entity to its shareholders as dividends or is kept as retained earnings in reserves.

Understanding PAT

  • Profit After Tax is an important measure of the company, since it shows the actual amount that a company is making in that operating year. It shows the cost and the cash earnings of the company, which then determines the operational efficiency and performance.

  • Often analysts pit companies’ profit after tax against other companies in the same market segment to compare the health of businesses. This figure is also used in other ratios and complex equations such as profit-after-tax margin, which gives a more objective and detailed look of the company. It is significant in showing the competency of a business in being able to turn its revenue into profits.

Highlights of Profit After Tax

  • It had many other names such as Net Operating Profit After Tax (NOPAT) or simply Net Profit After Tax.

  • Profit After Tax is often an effective figure used to calculate ratios which measure the profitability and efficacy of the company

  • Profit After Tax margin uses PAT to show how any change in the value will manipulate the stock prices when the company is publicly listed.

  • If the company is listed, Profit After Tax is calculated on a per share basis too and it appears on the income statement of the company.

  • If the PAT value is high, it shows high efficacy and vice versa.

  • PAT is directly proportional to the dividends paid to equity shareholders; more profit after tax, better dividends are paid.

  • When the profit after tax is negative, it is considered as a loss and therefore it is not taxable. It makes the company unsustainable during a loss period.

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