ATO audit hotspots

Let’s say I bought muffin pans to do my cupcakes and to bake you know I bought equipment I bought stoves I bought fridges I bought everything like that and all of these things are material and so material possessions and assets depreciate over time let’s say they lose 2% of their value over time or 5% of their value over time that doesn’t necessarily reflect or shouldn’t necessarily necessarily be taken into account if I want to compare myself to a competitor in terms of capacity of generating income from my operations directly right so I want to take that out of the equation so I’m going to get my earnings before interest in taxes and I’m going to take out depreciation and amortisation as well so I’m going to put myself on an even playing field with my competitors.

I’m going to say okay let’s say we both have no debt no amortization no depreciation we haven’t paid any taxes yet and we haven’t taken into account interests who has the best income from operating you know operating income who has the best operating income who has the biggest capacity to generate income from their actual business model who sells cupcakes the best that’s what I want to know and that’s what I want to compare and so that’s what a bit that does and that’s where it comes into effect and a bit des as well you can you can have some interesting ratios based on a bit des that can give you a good valuation metric to compare as well to competitors.

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