Taxation statistics 2015-16

How we calculate our industry benchmarks

Financial ratios

The financial ratios tables contain the following:

net profit ratio equals (total business income less total expenses) divided by total business income
gross profit ratio equals (total business income less cost of sales) divided by total business income
wage to turnover ratio equals salary and wages paid divided by total business income.

Table 24: Tax return labels used to calculate the financial ratios
Data item	Entity type	Tax return label
Total business income	Individuals	Total business income, Item P8
	Companies	Total income, Item 6, label S
	Partnerships and trusts	Total business income, Item 5
Cost of sales	Individuals	Cost of sales, Item P8, (label K + label L – label M)
	Companies	Cost of sales, Item 6, label A
	Partnerships and trusts	Cost of sales, Item 5, label E
Total expenses	Individuals	Total expenses, Item P8, (label S + label T)
	Companies	Total expenses, Item 6, label Q
	Partnerships and trusts	Total expenses, Item 5, label O
Salary and wages paid	Individuals	Total salary & wage expenses, Item P13, label G
	Companies	Total salary & wage expenses, Item 8, label D
	Partnerships and trusts	Total salary & wage expenses, Item 43, label L

Activity statement ratios

The activity statement ratios tables contain the following:

expense to sales ratio equals (non-capital purchases plus total salary & wages) divided by total sales
net GST to sales ratio equals (GST on sales less GST on purchases) divided by total sales
wages to sales ratio equals total salary & wages divided by total sales

Table 25: Activity statement labels used to calculate the ratios
Data item	BAS label
Total sales	Total sales, label G1
Total salary & wages	Total salary, wages and other payments, label W1
Non-capital purchases	Non-capital purchases, label G11
GST on sales	GST on sales or GST instalments, label 1A
GST on purchases	GST on purchases, label 1B

Exclusion criteria

In any large population being analysed, there are cases that would tend to produce misleading results if included. For example, when:

tax return labels have either not been filled in or not been used correctly
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 improve the quality of our industry benchmarks, we apply 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.

Table 26A: Selection criteria used to extract data for our industry benchmarks
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

Table 26B: Selection criteria used to extract data for our industry benchmarks
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	na
Expenses to sales	Total salary & wages	Greater than or equal to $0	na
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

Table 27: Why we exclude some data from the calculation of our industry benchmarks
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 54740