The target expenditure for Supplier, Enterprise and Socio-Economic Development is calculated for most of the Sector Codes (bar the Construction Sector Charter), based on a percentage of the net profit after tax (NPAT) for the specific financial year of the business being measured.
A frequent question is how the targets will be calculated if the business made a net loss that year.
- The codes then dictate that the average NPAT for the last five years be calculated and used;
- Should the average then also be a loss, we need to determine when last during these five-year period did the entity’s profit margin exceed a quarter of the industry norm net profit margin to calculate the applicable targets;
- If the entity never had a profit margin more significant than a quarter of the industry norm net profit margin during this period, a quarter of the industry norm net profit margin will be used to calculate the targets.
Where the business made a profit but the business’s profit margin for the applicable financial year was less than a quarter of the industry net profit margin, then the above calculation will also apply.
Please note the industry profit margins are updated every three months. Your assigned legal advisor will have access to the most recent and accurate figures and should be consulted in this regard.
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