Cash Profit
Cash Profit is a simplified measure of cash-generative earnings calculated by adding depreciation and amortisation back to profit after tax, providing an approximation of operating cash generation before working capital changes.
Cash Profit = Profit After Tax + Depreciation + Amortisation. This calculation rests on the observation that depreciation and amortisation are non-cash charges: they reduce reported profit but do not involve an outflow of cash in the period. Adding them back to PAT yields a proxy for cash earnings that is quicker to compute than operating cash flow from the cash flow statement.
The metric is widely used in Indian equity research as a quick liquidity and debt-repayment capacity indicator. Credit analysts use cash profit as a rough numerator in debt/cash profit ratios, analogous to the EV/EBITDA framework but starting from PAT rather than operating profit — making it a post-tax, post-financing measure rather than pre-interest.
For capital-intensive businesses with high depreciation — Tata Steel India, which carried large blast furnace and rolling mill assets, or NTPC, with decades of power plant depreciation — cash profit can be significantly higher than PAT. A company with a PAT of 1,000 crore and annual depreciation of 800 crore generates cash profit of 1,800 crore, indicating far greater financial flexibility than the PAT figure alone suggests.
The limitation is that cash profit ignores working capital changes, capex requirements, and tax payments in cash versus accrual. A company with large accounts receivable growth will have actual operating cash flow well below cash profit, because revenue is booked but not collected. Similarly, a company investing heavily in working capital — building inventory ahead of festive season — will show cash profit exceeding operating cash flow temporarily.
Cash profit also smooths over one-time items that distort PAT in a single year. Extraordinary write-offs, deferred tax adjustments, and exceptional items lower PAT but may not affect cash generation. Adding back non-cash charges provides a cleaner view of recurring cash earnings, though proper adjustment should separate genuinely non-cash items from items that have merely deferred cash impact.
In Indian real estate sector analysis, cash profit carries particular weight because of the sector's notoriously complex revenue recognition under Ind AS 115 (percentage-of-completion or at-completion). PAT can swing dramatically based on accounting choices, while cash profit better approximates the actual cash received and the underlying cash economics of completed projects.