Technical and Further Education Institutes: 2016 Audit Snapshot

Tabled: 7 June 2017

Appendix D. Financial sustainability risk indicators

Figures D1 and D2 set out the definitions and criteria applied in this report from prior years that we use when assessing risks to financial sustainability in the TAFE sector.

The financial sustainability indicators used in this report are indicative and highlight risks to ongoing financial sustainability at a sector level.

It is important to note that forming a definitive view of financial sustainability requires a holistic analysis that moves beyond historical financial considerations to also include consideration of financial forecasts and plans, operations and an entity's environment.

Figures D1 shows the indicators we used to assess the financial sustainability risks of the entities covered in this report. These indicators should be considered collectively, and are more useful when assessed over time as part of a trend analysis.

Figure D1

Financial sustainability risk indicators

Indicator

Formula

Description

Net result (%)

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.

Net result and total revenue is 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 rate of depreciation.

This is a long-term indicator, as capital expenditure can be deferred in the short term if there are not enough funds available from operations, and borrowing is not an option. Cash outflows for infrastructure are taken from the cash-flow statement. Depreciation is taken from the comprehensive operating statement.

Internal financing (%)

Net operating cash flow / Net capital expenditure

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

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

Net operating cash flows and net capital expenditure are obtained from the cash flow statement.

Source: VAGO.

Our analysis of financial sustainability risk in this report reflects on the position of each TAFE and its controlled entities (each consolidated TAFE).

Financial sustainability risk assessment criteria

The financial sustainability risk of each TAFE has been assessed using the criteria outlined in Figure D2.

Figure D2

Financial sustainability risk indicators—risk assessment criteria

Risk

Net result

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 rundown of cash reserves and inability to fund asset renewals.

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

Could indicate that not enough is being spent on asset renewal.

Might not be generating enough 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 not spending enough on asset renewal.

Generating enough cash from operations to fund new assets.

Source: VAGO.

Figures D3 to D17 show the financial sustainability risk for each consolidated TAFE institute from 2012 to 2016.

Figure D3

Advance TAFE

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

–3.36%

1.65

0.84

34%

2013

–50.94%

1.01

0.22

0.00%

2014

2015

2016

Note: Advance TAFE merged with Central Gippsland Institute of TAFE on 1 July 2014 to form Federation Training.

Source: VAGO.

Figure D4

Bendigo Kangan Institute

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

0.53%

1.10

0.60

286%

2013

0.30%

1.37

0.30

134%

2014

–13.42%

2.35

0.11

488%

2015

2.17%

2.37

0.23

751%

2016

2.72%

2.86

0.53

166%

Note: Bendigo TAFE merged with Kangan Institute on 1 July 2014. Results for 2012 to 2014 represent Bendigo TAFE only. From 2015, the combined results of Bendigo Kangan Institute are shown.

Source: VAGO.

Figure D5

Box Hill Institute

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

7.99%

2.44

2.85

81%

2013

–2.77%

2.27

3.49

0%

2014

–7.50%

2.14

0.66

0%

2015

7.23%

2.83

1.18

194%

2016

2.13%

2.16

5.10

25%

Source: VAGO.

Figure D6

Central Gippsland Institute of TAFE

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

12.65%

1.10

2.91

148%

2013

–14.96%

1.28

1.05

1.57%

2014

2015

2016

Note: Advance TAFE merged with Central Gippsland Institute of TAFE on 1 July 2014 to form Federation Training.

Source: VAGO.

Figure D7

Chisholm Institute

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

2.66%

1.48

1.02

78%

2013

22.65%

2.40

2.73

160%

2014

20.67%

3.02

3.83

116%

2015

4.84%

4.10

0.58

391%

2016

9.51%

4.55

0.98

362%

Source: VAGO.

Figure D8

Federation Training

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

2013

2014

–26.76%

0.87

0.49

0%

2015

–0.65%

2.02

0.10

1192%

2016

1.96%

2.44

0.27

804%

Note: Advance TAFE merged with Central Gippsland Institute of TAFE on 1 July 2014 to form Federation Training.

Note: 2014 figures are disclaimed, 2015 are qualified and 2016 are unaudited.

Source: VAGO.

Figure D9

Gordon Institute of TAFE

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

13.16%

3.98

1.49

200%

2013

0.79%

4.49

0.23

305%

2014

–18.51%

5.30

0.33

0%

2015

–1.65%

6.28

0.37

869%

2016

1.61%

5.77

0.96

238%

Source: VAGO.

Figure D10

Goulburn Ovens Institute of TAFE

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

15.40%

3.29

0.72

506%

2013

11.21%

3.19

0.50

741%

2014

–31.23%

3.60

0.27

0%

2015

–2.97%

3.55

0.34

87%

2016

2.05%

3.90

0.33

444%

Source: VAGO.

Figure D11

Holmesglen Institute

>Year

Net result

Liquidity

Capital replacement

Internal financing

2012

5.35%

1.02

1.75

127%

2013

–4.20%

0.41

0.64

937%

2014

–7.90%

1.80

0.73

0%

2015

9.88%

2.16

0.68

138%

2016

10.43%

2.54

0.79

404%

Source: VAGO.

Figure D12

Kangan Institute of TAFE

>Year

Net result

Liquidity

Capital replacement

Internal financing

2012

–0.71%

1.69

1.13

26%

2013

3.18%

1.41

0.97

199%

2014

2015

2016

Note: Kangan Institute merged with Bendigo TAFE on 1 July 2014. The combined results are shown as Bendigo Kangan Institute.

Source: VAGO.

Figure D13

Melbourne Polytechnic

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

3.34%

2.19

2.07

100%

2013

–28.05%

1.03

1.06

0%

2014

–16.90%

0.62

0.23

0%

2015

–2.50%

1.08

0.04

29783%

2016

–1.84%

1.18

1.12

64%

Source: VAGO.

Figure D14

South West Institute of TAFE

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

–1.73%

1.08

0.97

78%

2013

–12.59%

1.45

0.67

0%

2014

–31.60%

0.86

0.22

0%

2015

3.47%

2.75

0.25

23%

2016

0.38%

2.21

1.76

80%

Source: VAGO.

Figure D15

Sunraysia Institute of TAFE

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

0.28%

1.68

0.62

199%

2013

4.54%

1.61

1.40

166%

2014

–44.34%

0.72

0.98

30%

2015

16.92%

1.53

1.81

188%

2016

1.15%

1.86

2.50

60%

Source: VAGO.

Figure D16

William Angliss Institute of TAFE

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

–2.22%

1.38

0.65

0%

2013

–11.34%

1.20

0.46

0%

2014

–1.65%

1.37

0.17

0%

2015

5.09%

1.49

0.25

1666%

2016

9.09%

1.89

1.92

144%

Source: VAGO.

Figure D17

Wodonga Institute of TAFE

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

22.52%

2.12

3.00

149%

2013

2.19%

2.28

2.39

0%

2014

2.44%

3.00

0.75

200%

2015

1.60%

3.66

0.31

754%

2016

0.25%

4.73

0.27

1471%

Source: VAGO.

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