Adjusted profit after tax

Reported profit can include one-time events that have nothing to do with how the business normally performs — a factory fire, a settlement, a one-off asset sale.

Adjusted profit after tax removes these. What is left is the profit the business is likely to repeat next year, which is what an analyst actually wants to value.

The workbook's own worked exhibit, for Bharti Airtel, shows exactly how this is built:

Profit after tax
(+) Exceptional items (reversed out)
(-) Tax impact of that reversal
Adjusted profit after tax

The workbook is explicit that this is not always mechanical: "adjusted profit calculation may involve some arbitrary adjustment that requires an analyst judgement," because the tax impact of a specific exceptional item is not always separately disclosed. In Bharti Airtel's own FY2019 numbers, the effective tax rate itself became meaningless — the company reported a pre-tax loss but a tax expense that flipped it to a net profit — which is exactly the kind of year where an analyst has to judge the tax adjustment rather than compute it precisely.

Bharti Airtel's own reported numbers (Exhibit 8F, converted from the workbook's Rs million to Rs crore):

In FY2019, a one-off exceptional gain of Rs 2,928.8 crore had flattered the reported profit of Rs 1,687.5 crore. Strip it out, and the underlying business actually made a loss of Rs 1,241.3 crore that year. In FY2018 the exceptional item was a one-off expense, so adjusting for it raises profit from Rs 2,183.5 crore to Rs 2,713.6 crore. Reported profit alone would have told the opposite story about which year was really better.

Chapter 8.4.2, around Exhibit 8F, gives this exact Bharti Airtel computation. Expect a question that hands you a multi-step P&L with exceptional items and current/deferred tax lines and asks you to build adjusted PAT from it — the sign of the exceptional item is the part candidates get wrong.

• The exceptional item can be a gain or a loss in different years, and the adjustment direction flips accordingly — reversing a gain reduces adjusted PAT; reversing a loss increases it.
• The tax impact of the adjustment is not always known. The workbook's own Bharti Airtel example shows a year where the effective tax rate was "not meaningful," which is a signal to exercise judgement, not to invent a tax figure.
• Adjusted PAT is not a standardised, audited number — different analysts covering the same stock can reach different adjusted PAT figures depending on what they judge to be truly non-recurring.