Universities: 2016 Audit Snapshot

Tabled: 7 June 2017

Appendix D. Financial sustainability risk indicators

Figure D1 shows the indicators used in assessing the financial sustainability risks of universities in Part 4 of 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 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.

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 insufficient 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 its 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 university.

Financial sustainability risk assessment criteria

We assessed the financial sustainability risk of each university using the criteria outlined in Figure D2.

Figure D2
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 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.

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

The financial sustainability risk for each university and its controlled entities (each consolidated university), for each financial year ended 31 December 2012 through to 31 December 2016 are shown in Figures D3 to D10.

The following trend analysis has been applied to the results for each university:

↓ Deteriorating trend ↑ Improving trend ■ No substantial trend identified

Figure D3
Deakin University

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

13.31%

1.39

3.94

99%

2013

8.94%

1.16

2.79

101%

2014

7.04%

1.26

1.05

215%

2015

7.16%

1.28

1.42

165%

2016

5.10%

0.93

2.01

110%

Trend

Source: VAGO.

Figure D4
Federation University Australia

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

22.36%

5.33

3.36

223%

2013

1.83%

5.02

2.37

58%

2014

1.02%

2.64

0.46

369%

2015

2.33%

3.18

0.50

206%

2016

0.20%

2.78

0.54

12%

Trend

Source: VAGO.

Figure D5
La Trobe University

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

5.77%

1.16

4.15

63%

2013

7.19%

0.99

2.67

95%

2014

2.70%

1.02

1.52

159%

2015

8.85%

0.99

1.63

111%

2016

5.10%

0.78

2.37

87%

Trend

Source: VAGO.

Figure D6
Monash University

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

5.43%

0.46

2.11

127%

2013

3.33%

0.45

1.89

106%

2014

10.73%

0.42

2.61

110%

2015

7.98%

0.47

3.85

82%

2016

7.80%

0.35

3.70

86%

Trend

Source: VAGO.

Figure D7
RMIT University

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

5.32%

0.64

2.60

86%

2013

6.62%

0.66

1.17

195%

2014

6.78%

0.59

2.35

99%

2015

5.81%

0.59

3.35

69%

2016

7.62%

0.53

2.89

93%

Trend

Source: VAGO.

Figure D8
Swinburne University of Technology

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

3.80%

1.40

1.15

202%

2013

9.52%

1.35

3.30

105%

2014

2.38%

1.27

1.25

172%

2015

2.71%

1.28

0.48

393%

2016

3.25%

0.90

0.44

545%

Trend

Source: VAGO.

Figure D9
The University of Melbourne

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

6.63%

0.80

2.41

98%

2013

4.84%

0.80

1.75

119%

2014

7.59%

0.81

1.46

95%

2015

6.60%

1.10

1.41

170%

2016

7.39%

1.38

1.15

256%

Trend

Source: VAGO.

Figure D10
Victoria University

Year

Net result

Liquidity

Capital replacement

Internal financing

2012

-1.42%

0.83

1.97

88%

2013

1.33%

1.36

0.88

81%

2014

-3.64%

1.27

1.47

279%

2015

-2.81%

1.26

0.74

151%

2016

-2.53%

0.68

0.82

109%

Trend

Source: VAGO.

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