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Understanding financial ratios

Financial ratios are useful tools for business owners to monitor, analyse and improve their business performance.

A financial ratio contains one or more financial figures and is expressed as a ratio, rate or percentage. Financial ratios are used to measure profitability, cash flow and liquidity, risk and return, and stock turnover and sales.

Here are some common financial ratios used in business to:

– Measure profitability
Gross profit margin is a percentage of gross profit on sales.
To work out: (Gross profit x 100) divided by sales.

Net profit margin is a percentage of net profit on sales.
Method: (Net profit before tax x 100) divided by sales.

– Monitor cash and liquidity
Working capital ratio measures the liquidity of a business (i.e. how much money is available to meet creditors’ demands).
To determine this ratio: Working capital = current assets divided by current liabilities.

Quick assets ratio measures the solvency of your business, or its ability to meet its immediate commitments.
Method: Current assets (minus stock) divided by current liabilities.

– Measure turnover and sales
Stock turnover ratio measures the number of times stock turns over.
Method: Cost of goods sold divided by (0.5 x opening + closing stock)

Material to sales ratio measures the percentage of sales dollars spent on materials.
To determine this ratio: (Direct materials x 100) divided by sales.





Tax on super death benefits for dependants vs non-dependants

July 9, 2020

A super death benefit is the super paid after a person’s death, usually to a nominated beneficiary. These benefits are subject to different tax treatments, depending on whether the beneficiaries are dependant or non-dependant.

Superannuation death benefits will generally be received tax-free by tax dependants, who are considered to be:

Dependants will not have to pay tax on the tax-free component of their super in the event that they:

However, they will be taxed at their marginal rate if they receive a capped benefit income stream and:

Not all super death benefits are subject to tax; for non-dependants, there is a taxable portion. This component is largely made up of after-tax super contributions that the deceased member has made.

Super death benefit payments are subject to tax when:

Non-dependants must calculate how much money in the super account is a:

The amount of tax non-dependants pay will be based on their marginal tax rate, however, this amount may be reduced by tax offsets. For the taxed element of the taxable component, the effective tax rate is your marginal tax rate of 17% (whichever is lower). For the untaxed element of the taxable component, the effective tax rate is 32% or your marginal tax rate (whichever is lower).