# What Is PAT Margin And How It Is Calculated Within 2 Easy Steps

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# What Is PAT?

Profit After Tax (PAT) is the net operating profit of a company, it is defined as company operating profit after deducting its tax liability. This is also the last part of the P&L statement, hence it is also known as the bottom line of the P&L statement.

In order to arrive at the profit after tax (PAT), we need to deduct all the applicable tax expenses from the Profit Before Tax (PBT).

Let us understand PAT through a simple example,

For understanding purpose I have taken Tata Motors Limited (TML) Annual report, you can download Tata Motors Limited annual report here or even can get it from its website.

Standalone Financial statements represent the company’s standalone numbers/ financials and do not include its subsidiaries’ financials.

Whereas, the consolidated numbers include the companies (i.e. Standalone financials) and its subsidiaries financial statements.

Hence you should look through the consolidated financial statements as it represent the company’s financial position better.

Let us look at the P&L statement (this is half part covering only PAT) of Tata Motors Limited (TML) to understand how PAT is calculated.

As you can see from the snapshot above, to arrive at the profit after tax (PAT), we need to deduct all the applicable tax expenses from the PBT.

All taxes together total upto Rs.2,541.86 Cr. However there is also Share of profit/(loss) of joint ventures and associates (net) which stands at -Rs.378.96. Keep in mind number given in bracket are negative in P&L.

Hence Net PAT = PBT – Applicable taxes.

PAT = -10,474.28 – (2,541.86+378.96) = Rs.-13,395.10 Cr

As we can see there are also non controlling interest of Rs.56.29 we have to add this to PAT to arrive at the final PAT for the year 2021 for TML. Hence, TML has total profit and loss for FY21 of about Rs.(-13,451.39).

Do keep in mind sometime, PAT is also refer to as Net Income, Net earnings or net profit or the bottom line.

A company can utilize profit after tax in three different ways:

1. Entire amount can be distributed to shareholders of the company.
2. Some part of it is distributed as dividend and some part is invested back into the company, for research or expansion.
3. Whole profit amount is invested back into the company.

Start up companies usually tend to retain most of the earnings as they have enormous potential to grow and capture market share.

On the other hand, mature companies who have already grown a lot tend to distribute most of the income to shareholders in the form of dividends, due to lack of growth opportunities.

If you check the last 4 year net income i.e. P&L for TML, it was only profitable in the year FY2018.

At that time they have profit of Rs.8,988.91 cr, the major chunk of loss happened since 2019 onwards, that is why you also have seen shares of TML dropping to whopping Rs.67 from a high.

Pandemic added the fuel required fuel to skew it down to those level, although it have regained much now due to the last half year performance. The Other comprehensive income/(loss) does not be reclassified to profit or loss, hence one can avoid those numbers in P&L.

## What Is PAT Margin?

Profit After Tax Margin in short PAT Margin is calculated after deducting all expenses from the company’s Total Revenues to identify the company’s overall profitability. Higher the PAT Margin better is profitability ratio of the company.

But how do you know it is a good number or bad, for this you have to either compare the same, i.e. PAT margin of TML peers such as Maruti, Mahindra, etc. as well as look out for last atleast 5 years PAT Margin numbers to get a reference.

Just to let you know so that you do not get confuse, PAT Margin and NPM, Net Profit Margin is same thing.

Hence, NPM or PAT ratio tells us how efficiently a company is converting its sales to profit. Better management of taxes, raw materials, inventory and operational efficiency can lead to substantial profits.

Thus in case of two different companies of same size which operate in the same sector, the company which has higher NPM is more efficient, as it can generate more profits by selling the same amount of goods.

## How PAT Margin Is Calculated?

In order to calculate PAT Margin you should first know company PAT numbers and total revenue. Her is the formula to calculate PAT margin:

PAT Margin = [PAT/Total Revenues]

Below is the snapshot of total revenue of TML taken from its P&L Statement:

PAT Margin = -13,451.39/249,794.75

PAT Margin = -5.38%

Hence for FY21, TML PAT Margin stands at negative 5.38% which obviously is not good at all, however we know its due to the pandemic as well as problems face during EU Brexit due to which its one of the leading subsidiary Jaguar faced lot of trouble in 2019-2020.

Remember, PAT Margin is a financial ratio on its own conveys very little information. To make sense of it, we should either see the trend or compare it with its peers.

To get the real picture lets us see the PAT Margin trend of TML in last 5 years.

 PAT Margin Year 2.78% 2017 3.12% 2018 -9.49% 2019 -4.62% 2020

To find out if it is the best one needs to compare these numbers with its competitors. In the case of TML, it would be Maruti and Mahindra.

So checkout their respective PAT Margin, you can either calculate the same from its AR or can used the data which is available on any stock analysis websites. But remember, doing it from AR will be more good as sometime you will find the data on certain website mismatched.

I hope now you have the basic understanding of what is PAT and PAT Margin, But this is not the end, there are financial statements you should read and understand i.e. Balance sheet, Cash Flow Statement and profit and loss statement to gauge the complete knowledge about how company have performed in an financial year.

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