The more British American Tobacco holds every dollar it receives the income, the more money it has to invest in growth, fund new strategic plans, distribute to shareholders. Sound fields are often separate pretenders from the best stocks in the market.
That’s why we check up on margins at least once a quarter in this series. I’m looking for the absolute numbers, so I can compare them to current and potential competitors, and any trend that may tell me how strong competitive position of British American Tobacco could be.
Here’s a current snapshot of the field for British American Tobacco in the back 12 months: Gross margin is 78.0%, and operating margin of 34.4% and net profit by 20.5%.
Unfortunately, a look at the most recent numbers does not tell us much about where the British American Tobacco was, or where it happens. The company with the growth of the gross and operating margins often enhances its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing the competition, and possibly engaging in a race to the bottom on prices. If he can not make up for this problem by cutting costs - and most companies can not - then both the business and its shares face resolutely grim prognosis.
Of course, in the short term, the kind of economic shocks we recently experienced can significantly affect the profitability of the company. That’s why I like to look at five fiscal years, the cost of fields, along with the results for the trailing 12 months, the last fiscal year, and last fiscal quarter (LFQ). You can not always reach a hard conclusion about your company’s health, but you can better understand what to expect and what to see.
That’s the edge of the image for British American Tobacco in the past few years.
Source: S & P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = back 12 months.
Because of seasonality in some businesses, the number for the last period on the right - TTM figures - are not always comparable to the FY results ahead of them. To compare quarterly fields with their previous year levels, consult this chart.
Source: S & P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.
Here’s how to break the statistics:
• Over the past five years, gross margin peaked at 78% and averaged 75%. Operating profit peaked at 33.9% and averaged 31.7%. Net margin peaked at 21.3% and averaged 20.0%.
• TTM gross margin 80%, 400 basis points better than the five year average. TTM operating margin is 35.2%, 270 basis points better than the five-year average. TTM net margin is 21%, 50 basis points better than the five-year average.
With recent TTM operating margins exceeding historical averages, British American Tobacco looks like it works well.
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