Underlying Profit Explained: Why It Matters in 2025

For years, Australian companies have reported a variety of profit figures, but in 2025, underlying profit has re-emerged as the number to watch. With new accounting standards, shifting investor expectations, and a volatile economic climate, understanding underlying profit is crucial for anyone who wants a true picture of a company’s financial health.

What Is Underlying Profit—and Why Does It Matter?

Underlying profit, sometimes called ‘normalised profit’ or ‘adjusted profit,’ is a company’s net profit after removing one-off events and irregular items that can distort the true picture of ongoing performance. While statutory profit reflects every dollar in or out (including asset sales, legal settlements, or restructuring costs), underlying profit strips these out to focus on core business activities.

• Statutory profit: What’s reported under accounting rules (AASB/IFRS), including all extraordinary and non-recurring items.
• Underlying profit: Adjusted to remove exceptional or non-recurring items, aiming to show ‘business as usual’ earnings.

This distinction is especially relevant in 2025, as Australian businesses grapple with post-pandemic restructures, climate-related asset write-downs, and the impact of new ESG-related compliance costs.

How Underlying Profit Is Calculated in 2025

There’s no single formula for underlying profit—what’s included or excluded depends on management judgment and investor expectations. However, ASIC and ASX guidance in 2025 is tightening, requiring companies to clearly reconcile underlying profit with statutory numbers and provide detailed explanations for all adjustments.

Typical exclusions in 2025 include:

• Restructuring and redundancy costs from pandemic-era business transformations
• Gains or losses from divesting non-core assets or subsidiaries
• One-off legal settlements (such as remediation for past misconduct)
• Impairments due to revaluing assets for climate risk or ESG compliance
• Fair value adjustments related to volatile market conditions

For example, in the February 2025 reporting season, a major Australian bank reported a statutory profit of $4.2 billion, but after stripping out a $500 million remediation charge and $200 million in asset sales, the underlying profit was $4.9 billion. Investors and analysts focused on the underlying figure to gauge ongoing profitability and dividend sustainability.

Why Investors and Lenders Rely on Underlying Profit

Underlying profit isn’t just an accounting curiosity—it can make or break lending decisions, investor confidence, and even employee bonus pools. In 2025, with economic growth still uneven, banks are scrutinising underlying profit to assess creditworthiness for business loans. Shareholders are demanding transparency, especially after a string of high-profile profit downgrades tied to non-cash write-downs and regulatory fines.

Key reasons underlying profit is front and centre:

• Clarity on ongoing business health: It helps distinguish sustainable earnings from ‘noise.’
• Dividend outlook: Boards look to underlying profit for setting payout ratios, especially as cash flow is king in a high-interest-rate environment.
• Executive accountability: Many CEO and executive bonuses are now tied to underlying, not statutory, profit to reflect real performance.

But the use of underlying profit isn’t without controversy. Critics argue it can be used to ‘smooth’ results or downplay bad news. That’s why 2025’s regulatory focus is on transparency—requiring detailed reconciliations and explanations for every adjustment.

The Bottom Line: How to Interpret Underlying Profit in 2025

For investors, business owners, or anyone reading an annual report, it’s essential to look beyond the headline profit number. Ask:

• What’s included or excluded from underlying profit?
• Are the adjustments truly one-off, or could they recur?
• How does underlying profit compare with cash flow and statutory profit?

Ultimately, underlying profit is a valuable tool—but only when you understand what’s under the hood. In 2025, transparency is improving, but scrutiny remains key. Whether you’re weighing up an investment, applying for business finance, or benchmarking your company’s performance, knowing how to read underlying profit gives you an edge in a complex market.