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

Figure A2 Risk assessment criteria for financial sustainability indicators

Source: Victorian Auditor-General’s Office.

Overall financial sustainability risk assessment

Figure A3 Risk assessment criteria for financial sustainability indicators

Source: Victorian Auditor-General’s Office.

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