Part of the guide: Profit and loss, balance sheet and cash flow: the three financial statements explained
ExplainersEBITDA versus PAT: what each measures and why they differ
EBITDA and profit after tax are two different views of a company's earnings. What each includes, what each leaves out, and a worked example with illustrative numbers.
Results statements often quote two profit figures, EBITDA and PAT. They answer different questions, so they differ, sometimes by a lot.
The two definitions
- EBITDA is earnings before interest, tax, depreciation and amortisation. It is revenue less the costs of running the business, before financing costs, tax and the accounting write-off of assets. It is not a line in the statutory statement; companies calculate it.
- PAT is profit after tax: everything is deducted, including interest, depreciation and tax. It is the “bottom line” in the statement of profit and loss.
A worked example (illustrative numbers)
For a hypothetical company, in ₹ crore:
| Line | Amount |
|---|---|
| Revenue | 1,000 |
| Operating costs (materials, staff, other) | 800 |
| EBITDA | 200 |
| Depreciation and amortisation | 50 |
| Interest paid | 40 |
| Profit before tax | 110 |
| Tax | 30 |
| PAT | 80 |
EBITDA is 200 and PAT is 80. The gap of 120 is depreciation (50), interest (40) and tax (30).
Why both are shown
EBITDA shows how the operations performed before financing choices and accounting write-offs, which helps compare businesses with different debt levels. PAT shows what is left for shareholders after all costs. A business with heavy borrowing or large assets can have a high EBITDA and a small PAT.
What to watch
- EBITDA ignores real costs, such as the cost of replacing equipment and the interest that must be paid.
- Definitions differ between companies, for example whether other income is included. Check how the company defines it.
- PAT is a defined line in the Ind AS statement of profit and loss; EBITDA is not a recognised Ind AS or GAAP measure — it is a figure companies calculate themselves, which is also why its definition can vary (previous point). Neither is cash: both are calculated on an accrual basis. See the three financial statements for the difference between profit and cash.
For the wider list of lines in a results statement, see how to read a quarterly result.