Results of 2018 Audits: Technical and Further Education Institutes

Tabled: 30 May 2019

Appendix E. Financial sustainability risk indicators

Figure E1 shows indicators used in assessing the financial sustainability risks of TAFE institutes. These indicators should be considered collectively and are more useful when assessed over time as part of a trend analysis.

Figure E1
Financial sustainability risk indicators, formulas and descriptions

Indicator

Formula

Description

Net result margin (%)

Net result/Total Revenue

A positive result indicates a surplus, and the larger the percentage, the stronger the result. A negative result indicates a deficit. Operating deficits cannot be sustained in the long term.

The net result and total revenue are obtained from the comprehensive operating statement.

Liquidity (ratio)

Current assets/ Current liabilities

This measures the ability to pay existing liabilities in the next 12 months.

A ratio of one or more means there are more cash and liquid assets than short-term liabilities.

Capital replacement (ratio)

Cash outflows for property, plant and equipment/ Depreciation

Comparison of the rate of spending on infrastructure with its depreciation. Ratios higher than 1:1 indicate that spending is faster than the depreciating 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. Cash outflows for infrastructure are taken from the cashflow statement. Depreciation is taken from the comprehensive operating statement.

Internal financing (%)

Net operating cashflow/Net capital expenditure

This measures the ability of an entity to finance capital works from generated cashflow.

The higher the percentage, the greater the ability for the entity to finance capital works from their own funds.

Net operating cashflows and net capital expenditure are obtained from the cashflow statement.

Note: The internal financing ratio cannot be less than zero. Where a calculation has provided a negative result, this has been rounded up to 0%.

Source: VAGO.

Financial sustainability risk-assessment criteria

We assessed the financial sustainability risk of each TAFE using the criteria outlined in Figure E2.

Figure E2
Financial sustainability risk indicators—risk-assessment criteria

Risk

Net result margin

Liquidity

Capital replacement

Internal financing

High

Negative 10% or less

Less than 0.75

Less than 1.0

Less than 10%

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

Immediate sustainability issues with insufficient current assets to cover liabilities.

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

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

Medium

Negative 10%–0%

0.75–1.0

1.0–1.5

10–35%

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

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

May indicate spending on asset renewal is insufficient.

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

Low

More than 0%

More than 1.0

More than 1.5

More than 35%

Generating surpluses consistently.

 

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

Low risk of insufficient spending on asset renewal.

Generating enough cash from operations to fund new assets.

Source: VAGO.

Financial sustainability risk analysis results

Figures E3 to E6 show the financial sustainability risk indicators for each TAFE from 2014 to 2018, the annual sector average, and the five-year average for each TAFE.

Figure E3
Net result margin as a percentage

 

Net result margin

2014

2015

2016

2017

2018

Average

Bendigo Kangan Institute

-13.42%

2.17%

2.71%

4.87%

1.35%

-0.46%

Box Hill Institute

-7.15%

7.15%

2.11%

1.37%

7.71%

2.24%

Chisholm Institute

20.67%

4.84%

9.53%

20.05%

14.51%

13.92%

Federation Training

-26.76%

0.28%

2.56%

0.64%

1.60%

-4.33%

Gordon Institute of TAFE

-18.48%

-1.64%

1.61%

4.28%

1.51%

-2.54%

Goulburn Ovens Institute of TAFE

-31.21%

-2.97%

2.05%

4.17%

-0.31%

-5.65%

Holmesglen Institute

-7.90%

9.88%

10.39%

15.25%

1.51%

5.83%

Melbourne Polytechnic

-16.90%

-2.50%

-1.84%

0.09%

5.33%

-3.16%

South West Institute of TAFE

-31.46%

3.36%

0.38%

1.61%

10.92%

-3.04%

Sunraysia Institute of TAFE

-44.32%

16.92%

1.15%

2.59%

12.74%

-2.18%

William Angliss Institute of TAFE

-1.65%

5.09%

9.09%

1.59%

0.60%

2.94%

Wodonga Institute of TAFE

2.44%

1.60%

0.25%

2.09%

8.44%

2.96%

Average

Sector average

-14.68%

3.68%

3.33%

4.88%

5.49%

0.54%

Source: VAGO.

Figure E4
Liquidity ratio

 

Liquidity ratio

2014

2015

2016

2017

2018

Average

Bendigo Kangan Institute

2.35

2.37

3.03

2.48

2.58

2.56

Box Hill Institute

2.19

2.83

1.50

1.40

1.93

1.97

Chisholm Institute

3.02

4.10

4.55

5.60

2.76

4.01

Federation Training

0.90

2.00

2.53

6.38

7.19

3.80

Gordon Institute of TAFE

5.30

6.28

5.77

4.98

4.07

5.28

Goulburn Ovens Institute of TAFE

3.60

3.55

3.90

3.33

3.31

3.54

Holmesglen Institute

1.80

2.16

2.54

2.79

2.28

2.31

Melbourne Polytechnic

0.62

1.08

1.19

1.13

1.08

1.02

South West Institute of TAFE

0.86

2.75

2.21

2.48

2.79

2.22

Sunraysia Institute of TAFE

0.72

1.53

1.86

2.22

3.09

1.88

William Angliss Institute of TAFE

1.37

1.49

1.89

1.92

1.70

1.67

Wodonga Institute of TAFE

2.56

3.13

4.06

4.57

4.55

3.77

Average

Sector average

2.11

2.77

2.92

3.27

3.11

2.84

Source: VAGO.

Figure E5
Capital replacement ratio

 

Capital replacement ratio

2014

2015

2016

2017

2018

Average

Bendigo Kangan Institute

0.11

0.23

0.53

1.76

1.26

0.78

Box Hill Institute

0.66

1.18

5.10

2.30

2.11

2.27

Chisholm Institute

3.83

0.58

0.98

2.06

9.06

3.30

Federation Training

0.66

0.12

0.28

0.71

1.27

0.61

Gordon Institute of TAFE

0.33

0.37

0.96

1.82

3.69

1.43

Goulburn Ovens Institute of TAFE

0.27

0.34

0.33

1.22

0.36

0.50

Holmesglen Institute

0.73

0.68

0.79

1.21

3.26

1.33

Melbourne Polytechnic

0.23

0.04

1.12

1.43

2.38

1.04

South West Institute of TAFE

0.22

0.25

1.76

0.48

0.47

0.63

Sunraysia Institute of TAFE

0.98

1.81

2.50

0.52

0.59

1.28

William Angliss Institute of TAFE

0.17

0.25

2.06

0.78

1.59

0.97

Wodonga Institute of TAFE

0.75

0.31

0.34

0.29

0.50

0.44

Average

Sector Average

0.75

0.51

1.40

1.21

2.21

1.22

Source: VAGO.

Figure E6
Internal financing as a percentage

 

Internal financing

2014

2015

2016

2017

2018

Average

Bendigo Kangan Institute

488%

751%

166%

89%

105%

320%

Box Hill Institute

0%

194%

25%

61%

325%

121%

Chisholm Institute

116%

391%

362%

216%

53%

228%

Federation Training

0%

533%

783%

351%

141%

362%

Gordon Institute of TAFE

0%

869%

238%

123%

40%

254%

Goulburn Ovens Institute of TAFE

0%

87%

444%

152%

694%

275%

Holmesglen Institute

0%

138%

404%

129%

49%

144%

Melbourne Polytechnic

0%

29 783%

64%

123%

110%

6 016%

South West Institute of TAFE

0%

23%

80%

614%

542%

252%

Sunraysia Institute of TAFE

30%

188%

60%

347%

626%

250%

William Angliss Institute of TAFE

0%

1 666%

142%

237%

14%

412%

Wodonga Institute of TAFE

200%

754%

1 471%

165%

548%

628%

Average

Sector average

69%

2948%

353%

217%

271%

772%

Source: VAGO.

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