PAT on the back

If you want to invest in a company on the basis of minimum research

then look for PAT.

PAT = Net Profit after Tax, Depreciation and Interest

Afterall, we do business and do investment for profit.

But before you invest, just check where from this profit has come, and

how does this profit relate to the revenue!

Four situations may arise

I. PAT has increased and the Revenue has decreased

II. PAT has decreased and the Revenue has increased

III. PAT and Revenue have both decreased

IV. PAT and Revenue have both increased.

In First case, the company is not growing but is becoming financially healthier by controlling the costs (except in case of extraordinary income case).

In Second case, the company is facing extra-ordinary pressure on cost side due to competition or input costs etc.. If the decrease in profit despite increase in revenue is because of inefficiency it is a danger signal! Anyway, this second case is a "stay-away" or "wait and watch" signal.

Third case is a big No-No.

Fourth case is a big Yes, IF

it is sustainable and more than the expectations!