The recent VAGO Report - Organsisational Sustainability for Small Councils tabled on 12th June 2013 identifed some finanical sustainabiltiy indicators for counsils. These are reproduced below
Financial sustainability indicators for councils
| Indicator | Formula | Description |
|---|---|---|
| Underlying result (per cent) | Adjusted net surplus/ total underlying revenue | A positive result indicates a surplus. The larger the percentage, the stronger the result. A negative result indicates a deficit. Operating deficits cannot be sustained in the long term.Underlying revenue does not take into account non-cash developer contributions and other one-off (non‑recurring) adjustments. |
| Liquidity | Current assets/ current liabilities | Measures the ability to pay existing liabilities in the next 12 months.A ratio higher than 1:1 means there is more cash and liquid assets than short‑term liabilities. |
| Self-financing (per cent) | Net operating cash flows/ underlying revenue | Measures the ability to replace assets using cash generated by the entity’s operations.The higher the percentage, the more effectively this can be done. |
| Indebtedness (per cent) | Non-current liabilities/ own-sourced revenue | Comparison of non-current liabilities (mainly comprised of borrowings) to own-sourced revenue. The higher the percentage, the less able to cover non‑current liabilities from the revenues the entity generates itself.Own-sourced revenue is used (rather than total revenue) because it does not include capital grants, which are usually tied to specific projects. |
| Capital replacement | Capital expenditure/ depreciation | Comparison of the rate of spending on infrastructure with its depreciation. Ratios higher than 1:1 indicate that spending is faster than the depreciation rate.This is a long-term indicator, as capital expenditure can be deferred in the short term if there are insufficient funds available from operations, and borrowing is not an option. |
| Renewal gap | Renewal and upgrade expenditure/depreciation | Comparison of the rate of spending on existing assets through renewing, restoring, and replacing existing assets with depreciation. Ratios higher than 1:1 indicate that spending on existing assets is greater than the depreciation rate.Similar to the investment gap, this is a long‑term indicator, as capital expenditure can be deferred in the short term if there are insufficient funds available from operations, and borrowing is not an option. |
Source: Victorian Auditor-General’s Office.
Risk assessment criteria for financial sustainability indicators
Source: Victorian Auditor-General’s Office.
Overall financial sustainability risk assessment
Source: Victorian Auditor-General’s Office.
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