2014-01-13 Item 6.3 Appendices 1-5

Appendix 6: Key financial ratios definitions and
benchmarks
                                                                                                                                                      Target
Indicator             Calculation and definition
                                                                                                                                                  benchmark

                      Net rates and utilities and fees and charges / total operating revenue
Own Source            This indicates the level of Council's fiscal flexibility. It is the degree of reliance on external funding sources          Greater than
Operating Revenue     such as operating subsidies, donations and contributions. Council’s financial flexibility improves the higher the                   60%
                      level of its own source revenue.


                      Operating result (excluding capital items) as a percentage of operating revenue
Operating Surplus     This is an indicator of the extent to which revenues raised cover operational expenses only or are available for   Between 0% and
Ratio                 capital funding purposes. A positive ratio indicates the percentage of total rates available to help fund proposed           10%
                      capital expenditure.


                     Operating result before gross interest expense and depreciation / gross interest expense
                                                                                                                                                Greater than 4
Interest Cover Ratio This ratio indicates the extent to which Council can service its interest bearing debt and take on additional
                                                                                                                                                         times
                     borrowings. It measures the burden of the current interest expense upon Council’s operating cash.


                      Net operating cash flow + gross interest expense / gross interest expense + prior year current interest
                      bearing liabilities
Total Debt Service                                                                                                                              Greater than 2
                      This ratio indicates Council’s ability to repay loan funds. If cover drops below benchmark, this may indicate
Cover                                                                                                                                                    times
                      periods of higher risk for Council with constrained flexibility and limited capacity to take on higher levels of debt
                      to manage unforeseen financial shocks.


                      Current year’s cash and cash equivalents balance / (total operating expenses – depreciation and
Cash Expense          amortisations – finance costs charged by QTC – interest paid on overdraft) *12                                            Greater than 3
Cover                 This liquidity ratio indicates the number of months Council can continue paying for its immediate expenses                      months
                      without additional cash inflow.

                     Capital expenditure divided by depreciation expense (expressed as a percentage)
Asset Sustainability                                                                                                                           Greater than 1.1
                     This is an approximation of the extent to which the infrastructure assets managed by a local government are
Ratio                                                                                                                                                     times
                     being replaced as these reach the end of their useful lives.

                      Total liabilities less current assets divided by total operating revenues (expressed as a per cent)
Net Financial                                                                                                                                  Not greater than
                      This is an indicator of the extent to which the net financial liabilities of a local government can be serviced by its
Liability                                                                                                                                                  60%
                      operating revenues. A ratio greater than zero implies that total liabilities exceed current assets.

                      Current assets divided by current liabilities
Working Capital                                                                                                                                 Greater than 3
                      This is an indicator of the management of working capital and measures the extent to which a local government
Ratio                                                                                                                                                    times
                      has liquid assets available to meet short term financial obligations.

Average Useful Life   Total assets (or asset class) divided by total depreciation (or depreciation on asset class)
                                                                                                                                               Greater than 35
Property, Plant &     This is an indicator of asset management planning and asset renewal and or maintenance of the asset base of
                                                                                                                                                         years
Equipment             Council.

QTC may use additional sustainability ratios where required




De-amalgamation Analysis of Sunshine Coast Regional Council                                                                                          Page 40