Profitability indicators

Net result (%)

This measures how much of each dollar collected as revenue translates to net result. A positive result indicates a surplus, and the larger the percentage, the stronger the result.

Net result / Total revenue

Adjusted underlying result

This measures an entity ability to generate surplus in the ordinary course of business—excluding non-recurrent capital grants, non-monetary asset contributions, and other contributions to fund capital expenditure from net result. A surplus or increasing surplus suggests an improvement in the operating position.

Adjusted underlying surplus (or deficit) / Adjusted underlying revenue

Financing indicators

Liquidity (ratio)

This measures an entity's ability to pay existing liabilities in the next 12 months. A ratio greater than 1.0 means there are more cash and liquid assets than short-term liabilities.

Current assets / Current liabilities

Internal financing (%)

This measures an entity's ability to finance capital works using cash generated by its operating cash flows. The higher the percentage, the greater the ability for the entity to finance capital works from its own funds.

Net operating cash flow / Net capital expenditure

Indebtedness (%)

This assesses an entity's ability to pay the principal and interest on borrowings, as and when they fall due, from the funds it generates. The lower the ratio, the less revenue the entity is required to use to repay its total debt.

Own-sourced revenue is used, rather than total revenue, because it does not include grants or contributions.

Non-current liabilities / Own-sourced revenue

Asset renewal and maintenance indicators

Capital replacement (ratio)

This compares of the rate of spending on infrastructure, property, plant and equipment, and intangibles with its depreciation and amortisation. This is a long-term indicator, as capital expenditure can differ in the short term if there are insufficient funds available from operations, and borrowing is not an option. A ratio less than 1.0 means the spending on capital works has not kept pace with consumption of assets.

Cash outflows for property, plant and equipment / Depreciation

Renewal gap (ratio)

This compares the rate of spending on existing assets through renewing, restoring, and replacing existing assets with depreciation. Ratios higher than 1.0 indicate that spending on existing assets is faster than the depreciation rate.

Renewal and upgrade expenditure / Depreciation

High

Less than negative 10%

Insufficient revenue is being generated to fund operations and asset renewal.

Insufficient surplus being generated to fund operations.

Less than 0.75

Immediate sustainability issues with insufficient current assets to cover liabilities.

Less than 75%

Limited cash generated from operations to fund new assets and asset renewal.

More than 60%

Potentially long-term concern over ability to repay debt levels from own-source revenue.

Less than 1.0

Spending on capital works has not kept pace with consumption of assets.

Less than 0.5

Spending on existing assets has not kept pace with consumption of these assets.

Medium

Negative 10%–0%

A risk of long-term run down to cash reserves and inability to fund asset renewals.

0%–5%

Surplus being generated to fund operations.

0.75–1.0

Need for caution with cash flow, as issues could arise with meeting obligations as they fall due.

75–100%

May not be generating sufficient cash from operations to fund new assets.

40–60%

Some concern over the ability to repay debt from own-source revenue.

1.0–1.5

May indicate spending on asset renewal is insufficient.

0.5–1.0

May indicate insufficient spending on renewal of existing assets.

Low

More than 0%

Generating surpluses consistently.

More than 5%

Generating strong surpluses to fund operations.

More than 1.0

No immediate issues with repaying short-term liabilities as they fall due.

More than 100%

Generating enough cash from operations to fund new assets.

40% or less

No concern over the ability to repay debt from own-source revenue.

More than 1.5

Low risk of insufficient spending on asset renewal.

More than 1.0

Low risk of insufficient spending on asset base.