Sometimes, assessing the earning capacity of a Transport Operator is not as simple as a mere examination of the business’s financial statements. Consideration of the following is “key” when examining the earnings of transport operations businesses.
- Operator’s source of payment – How is the Operator paid (Eg. kilometres driven, cargo delivered, etc)?. Have these rates changed from year to year?
- Existence of large contracts – Does the business operate under contract? Is the contract fixed income (ie. no increase in income during the “contract bound” years)? Renewability of contracts?
- Fuel price changes – Have there been dramatic changes in the historical prices of petrol and diesel? If the business operates under a fixed income contract, is the gross profit margin decreasing (due to static income and increasing fuel costs)?
- Depreciation – Use of accelerated depreciation rates during the early years of asset ownership? May be appropriate to “normalise” depreciation.
- Change of primary vehicle – Was the primary truck of the business written off as a result of the accident? If so, was it replaced by a comparable vehicle? Is the claim for property loss or economic loss?
- Repairs and maintenance – Fluctuations in repairs and maintenance costs? Have large scale improvements / additions occurred that have been classified as repairs though, more correctly, should be capitalised and depreciated?
- Travel and accommodation – Has the business claimed significant allowances for travel and accommodation? Are the amounts reasonable? May be necessary to compare the allowances to ATO, ABS and benchmarking data.
- Fuel tax credits – Fuel Tax Credits included as income? In reality, these amounts represent a reduction in fuel expenses (ie. a negative expense).
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