Taxation statistics 2011-12

Exclusion criteria

In any large population being analysed, there will be cases which, if included, would tend to produce misleading results. For example, where income tax return labels have either not been filled in or not been used correctly, or the ratios for an individual entity are exceptional and would distort the calculation of a true industry average.

In an attempt to remove these cases from the calculation of the ratios and thereby improve the quality of our industry benchmarks, we apply certain exclusion criteria. The exclusion criteria used and the reason for using them are detailed below.

Despite applying these exclusion criteria, it is still important to recognise that the benchmarks developed are not definitive and should not be used in isolation. For example, there are a range of legitimate reasons why businesses vary from industry averages and, conversely, why businesses with ratios close to the industry average may have compliance problems or other financial difficulties. Also, an average ratio calculated using a large population is generally more reliable than one calculated from a small population.

The selection criteria we have used to extract data for our industry benchmarks follow:

Financial ratio	Data item	Criteria - all entities	Criteria - "profitable" entities
Net profit	Total business income	Greater than or equal to $10,000	Greater than or equal to $10,000
	Total expenses	Greater than $0	Greater than $0
	Net profit ratio	Between -100% and +100%	Greater than or equal to 0%
Gross profit	As for net profit ratio PLUS:
	Cost of sales	Greater than $0	Greater than $0
	Total expenses	Not equal to cost of sales	Not equal to cost of sales
	Gross profit ratio	Between -100% and +100%	Greater than or equal to 0%
Wages to turnover	As for net profit ratio PLUS:
	Salary and wage paid	Greater than or equal to $20,000	Greater than or equal to $20,000
	Salary and wage paid	Less than or equal to total expenses	Less than or equal to total expenses
Activity statement ratio	Data item	Criteria - all entities	Criteria - "profitable" entities
Wages to sales	Total sales	Greater than $50,000	Greater than $50,000
Wages to sales	Total salary & wages	Greater than or equal to $10,000	Greater than or equal to $10,000
Expenses to sales	Total sales	Greater than $50,000	N/A
Expenses to sales	Total salary & wages	Greater than or equal to $0	N/A
Net GST to sales	Total sales	Greater than $50,000	Greater than $50,000
Net GST to sales	Total sales	Greater than GST on sales	Greater than GST on sales

The reasons we exclude certain data from the calculation of our industry benchmarks are explained below:

Data item	Reason for exclusion criteria


Total expenses	It is expected that most businesses would have some expenses (such as rent, motor vehicle, depreciation). Cases where total expenses are less than or equal to $0 have therefore been excluded due to doubts about the quality of the data. As businesses would normally have other expenses such as bad debts, rent, interest and motor vehicle expenses, cases where total expenses equals cost of sales (in the gross profit ratio), have also been excluded.


Net Profit ratio	There were a small number of cases that had a net profit ratio less than -100%. These values are considered to be statistical 'outliers' and while they could legitimately exist, they were excluded as they tend to unfairly skew the end result.


Cost of sales	While technically possible to be less than $0, in these cases the gross profit ratio would be greater than 100%, and therefore were excluded. Where cost of sales equals $0, these cases were excluded due to doubts about the quality of the data.


Gross profit ratio	A few cases that fell into this range were excluded for the same reason as the net profit less than -100% cases.
Salary and wage expenses	Entities with salary and wage expenses < $20,000 are unlikely to have permanent full-time staff and were excluded. Cases with salary and wages expenses > total expenses were excluded due to doubts about data quality.

Last modified: 24 Sep 2020QC 39946