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British American Tobacco's (LON:BATS) Solid Earnings Have Been Accounted For Conservatively

Simply Wall St · 08/07 05:09

British American Tobacco p.l.c. (LON:BATS) announced a healthy earnings result recently, and the market rewarded it with a strong uplift in the stock price. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.

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earnings-and-revenue-history
LSE:BATS Earnings and Revenue History August 7th 2025

The Impact Of Unusual Items On Profit

For anyone who wants to understand British American Tobacco's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by UK£6.8b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. British American Tobacco took a rather significant hit from unusual items in the year to June 2025. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On British American Tobacco's Profit Performance

As we mentioned previously, the British American Tobacco's profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that British American Tobacco's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 3 warning signs with British American Tobacco, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of British American Tobacco's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.