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Industry benchmarks Ngā paearu ahumahi
Formula

Gross profit divided by sales and/or services

Box 6 divided by Box 2 [in your IR10 form]

Definition

Gross profit indicates how much profit is made after paying for the cost of goods sold (the direct costs attributable to the production of goods and supplies such as inventory and stock). The gross profit ratio, also known as gross margin, represents gross profit expressed as a percentage of income from sales and services. Gross profit ratios vary by industry and business. The higher the gross profit margin the more efficient a business. A low gross profit ratio may indicate that a business is not charging enough for its products and services, or is paying too much for its supplies and stock.

Formula
Definition

A benchmark is a standard or reference that allows comparisons to be made. Industry benchmarks have been developed to help you assess your business performance, by comparing your business with others in your industry. They also provide guidance on what figures we expect to see a business in your industry report.

Formula

Total current year taxable profit divided by (sales and/or services plus interest received plus dividends plus rental and lease payments plus other income)

Box 29 divided by (Box 2 plus Boxes 7, 8, 9 and 10) [in your IR10 form]

Definition

Taxable profit ratio represents the profit percentage of total sales after taking into consideration all business expenses. While the gross profit ratio only includes the direct cost of making the supplies such as purchases, the taxable profit ratio takes the gross profit and all other costs and income into account. This would include the cost of premises, electricity, wages and any other expenses incurred in generating turnover. Sustained low or negative (loss) profit ratios can indicate that a business is not performing efficiently. A high profit ratio can indicate good business performance.

Formula

Cost of goods sold divided by ((opening stock plus closing stock) divided by 2))

(Box 3 plus Box 4 minus Box 5) divided by ((Box 3 plus Box 5) divided by 2)) [in your IR10 form]

Definition

Stock turnover, also known as inventory turnover, represents the number of times stock is sold and replaced within a year. A high stock turnover may indicate:

• a high-volume low-mark-up business model,
• that the business is holding very low stock levels, or
• that the business has a lot of wastage.

A low (also known as slow stock turnover) turnover may indicate:

• a low-volume high-mark-up business model,
• that a business has too much money tied up in stock, or
• the business holds high levels of out-of-date or unsaleable items.

Formula

Salaries and wages divided by (sales and/or services plus interest received plus dividends plus rental and lease payments plus other income)

Box 23 divided by (Box 2 plus Boxes 7, 8, 9 and 10) [in your IR10 form]

Definition

This ratio represents the percentage of turnover income that is spent on labour costs. It can be an indicator of whether a business is spending too much or too little of its turnover income on staffing the business.

Formula

Total current year taxable profit divided by total assets

Box 29 divided by Box 45 [in your IR10 form]

 

Definition

The return on total assets represents the ratio of net income to assets. This ratio tests the efficiency of investment in fixed assets and is a measure of how effectively the business has converted these assets into net income. The higher the ratio, the more efficient a business is. The lower the ratio, and a negative ratio (loss), the less efficiently the business has used the assets.

Formula

Total current year taxable profit divided by total proprietor or shareholder funds

Box 29 divided by Box 54 [in your IR10 form]

Definition

The return on equity represents the rate of return earned on the owner’s equity and investment. It measures the business’s efficiency at turning equity (assets less liabilities) into profit. The higher the ratio, the more efficient a business is, whereas the lower the ratio, and a negative ratio (loss), the less efficiently the business has used the owner’s investment.

Formula

Total current assets divided by total current liabilities

Box 33 divided by Box 49 [in your IR10 form]

Definition

The current ratio represents the ratio of current assets to current liabilities and gives an indication of a business’s ability to pay its short term liabilities. A ratio less than 100 indicates that current liabilities are greater than current assets and that the business may struggle to pay its short-term debts. A ratio higher than 100 means a business should be able to pay its short-term liabilities. The ability to meet current liabilities in the short-term is often dependent on how liquid the current assets are.

Formula

(Total current assets minus closing stock) divided by total current liabilities

(Box 33 minus Box 5) divided by Box 49 [in your IR10 form]

Definition

The quick ratio, also known as the acid test, is very similar to the current ratio, but excludes stock. It tests a business’s ability to pay short-term debt from immediately convertible or liquid assets (that is assets that can be readily converted to cash such as debtors, bank or cash on hand). A ratio higher than 100 means a business should be able to pay its short-term liabilities immediately or within a very short timeframe. If the ratio is very high it may mean that the business has few current liabilities or that the quick/cash assets are very high. A ratio lower than 100 means a business could have difficulty meeting all of its short-term liabilities.

Formula

Total proprietor or shareholder funds divided by (total proprietor or shareholder funds plus total liabilities)

Box 54 divided by (Box 54 plus Box 51) [in your IR10 form]

Definition

The liability structure ratio represents equity solely as a proportion of equity plus liabilities. A low ratio indicates a low level of owner’s equity in the business, and a higher risk to debt holders. A high ratio indicates a high level of owner’s equity in the business, and a lower risk to debt holders.

About industry benchmarks

 

The industry benchmark figures on this site are provided by Statistics New Zealand.

 

One of our key functions is to support our customers to manage their tax obligations by providing information, self-assessment tools and online services.

Industry benchmarks are a tool to enable small to medium enterprises to do this.

A benchmark is a standard or reference that allows comparisons to be made. The ranges have been chosen so that most businesses in an industry are within or close to the published benchmark range. Industry benchmarks have been developed to help you assess your business performance by comparing your business with others in your industry. They also provide guidance on what figures we expect to see reported for the majority of businesses in your industry.

Industry benchmarks are available for 45 industries, based on 2013/2014 financial data.

Development of industry benchmarks 2013/14

Statistics New Zealand has calculated the industry benchmarks using information provided on financial statements and tax returns. All businesses supplying financial statements and tax returns are included in the calculation of standard performance range, where the turnover for those businesses is between $60,000 and $10 million inclusive.

Turnover bands have been calculated to produce four even quarters of the industry population. This allows you to find the most comparable indicators for your size of business (ie. micro, small, medium, or large based on turnover).

For some industries, changes in indicators are not consistent with the change in business turnover/size. This may happen because business turnover is not the only factor influencing values of particular indicators (ie. operating structure, and geographic location can also influence indicator values).

Inland Revenue supplies each business's financial returns and attachments to Statistics New Zealand, who use this information to calculate the industry benchmarks. Statistics New Zealand does not return any information about any specific business data to Inland Revenue, nor anything that could be used to identify any individual to Inland Revenue.

You can find the formulae that Statistics New Zealand used by going to:

Work out your business performance ratios

Currently industry benchmarks are available for 45 industries, based on data from the 2013/2014 financial data.

If the industry benchmarks have been published for your industry, you can find the formulas used and definitions of terms with your industry-specific information by going to:

Find your industry benchmarks

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Methodology

The methodology to determine turnover bands is based on a simple quartile approach unique to each industry.

The bands are now divided into four quartiles based on numbers of participants in each industry:

  • micro 0 to 25%
  • small 25% to 50%
  • medium 50% to 75%
  • and large 75% to 100%.

Turnover bands will be different for each industry.

Performance benchmarks

Performance benchmarks are a type of industry benchmark. These benchmarks provide key financial ratios for your industry to help you work out if your business performance:

  • is similar to other businesses within your industry
  • falls within or outside the industry benchmark range for your industry
  • differs from the industry benchmark range and why this may be.

Performance benchmarks have been developed using information provided on financial statements and tax returns.

There are eight benchmarks that can help you compare and check your own business performance:

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How industry benchmarks can help you

Small to medium enterprises, especially new businesses, can use industry benchmarks as a tool to assist with planning and budgeting.

Industry benchmarks can help you to:

  • compare how your business is performing against others in your industry
  • check that you are meeting your tax obligations by accurately reporting all your income and expenses
  • assist you with your business planning and/or budgeting
  • work out if you need to review your business and record keeping practices
  • evaluate the likelihood of being reviewed by Inland Revenue.

The benchmarks will give you a better picture of your competitive position.

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What we are doing

  • We help our customers manage their obligations by providing information, self-assessment tools and online services. These industry benchmarks are a tool that small to medium-sized businesses can use to do this.
  • We continue to work with Statistics New Zealand to develop benchmarks. This depends on the size of the industry and the availability of specific data.
  • We encourage businesses outside the benchmarks to review their performance and tax affairs and make a voluntary disclosure where appropriate.