Вы находитесь на странице: 1из 7

EXPLANATION OF FINANCIAL RATIOS

RATIO MEANING OF RATIO / OBJECTIVE DEFINITIONS


Working Capital Ratios
Current Assets
Current Liabilities
Cash Coverage Ratio
Cash and cash equivalents at Year End x 100 [%]
Fixed Monthly Operating Cash Payments
Cash Funded
[(Budgeted surplus for the financial year & provision for
impairments)/ gross increase in debtors] x 100 [%]
Gross Debtors to Annual Revenue
Gross debtors x 100 [%]
Liquidity Ratio (Current Ratio) This ratio indicates the extent to which current assets can
be used to settle short-term liabilities. If current assets
do not exceed current liabilities it means liquidity problem
i.e. insufficient cash to meet financial obligations. Current
asset must be increased to settle current liabilities or non-
current assets will need to be liquidated to settle current
liabilities.
Current Assets : Total Current Assets as reflected in
the Statement of Financial Position. Current
Liabilities : Total Current Liabilities as reflected in
the Statement of Financial Position.
Indicates the municipality's ability to meet at least its
monthly fixed operating commitments without collecting
any additional revenue during that month.
Cash and cash equivalents : Is the sum of all cash
available in a current account, daily call deposit
or any other deposit with a call period of 90 days
or less. Fixed Monthly Operating Cash Payments
: Any expenditure which becomes payable during
the month by way of a contract, lease agreement
or any other arrangement committing the
municipality to such a payment. Examples will
include bulk purchases, debit orders for lease or
other agreements, short-term insurance,
instalments on loan agreements, salaries and
Councillor allowances.
Actual Billed Revenue
This ratio indicates whether the budget for the year under
review was cash funded. A Municipality is not allowed to
approve a budget if it is not cash funded.
Budgeted surplus: is the difference between
budgeted income and expenditure for the year in
which the statements of financial performance has
been produced. Permission for impairments: is the
amount set aside for bad debt gross increase in
debtors between the current year and previous years.
Gross Debtors : Is the balance of debtors that are
classified as current for financial statement purposes.
Only consumer debtors are taken into account for the
purpose of this ratio. Actual Billed Revenue : Total
of all billing done during one financial year for all
services rendered on credit.
This ratio indicates the percentage of gross debtors to
revenue. It focuses on the period that it takes to recover
payment in respect of amounts levied for services
rendered on credit. It takes into account the major
revenue sources that gives rise to consumer and
consumer debtors. It is generally not comparable
between municipalities if there have been significant write-
offs of debtors' balances outstanding in prior year
periods. It may indicates the effectiveness of credit
control procedures.
RATIO MEANING OF RATIO / OBJECTIVE DEFINITIONS
Short term debt as a total to revenue
(Short term debt/total revenue) x 100 [%]
Gross Debtors Days
Gross Debtors x 365
Gross debtors - bad debt provision x 100 [%]
Net Debtors Days
(Gross Debtors - Provision for Bad Debts) x 365
Annual Collection Rate
[100 - (Movement in Consumer Gross Debtors)] %
Billed revenue
Net Debtors to Annual Revenue
This ratio reflect the collection period. Indicates the
number of days that debtors' balances will be received
excluding those debtors' balances that are irrecoverable
or for which a bad debt has been raised. It also indicates
the extent to which provision has been made for
irrecoverable debtors' balances.
Gross Debtors : Is the balance of debtors that are
classified as current for financial statement purposes.
Only consumer debtors are taken into account for
the purpose of this ratio. Provision for Bad Debts :
Is the amount set aside as a provision in the
accounting record. Actual Billed Revenue : Total of
all billing done during one financial year for all
services rendered on credit.
Gross Debtors : Is the balance of debtors that are
classified as current for financial statement purposes.
Only consumer debtors are taken into account for
the purpose of this ratio. Provision for Bad Debts :
Is the amount set aside as a provision in the
accounting record to take into account the possible
non-payment by debtors. Actual Billed Revenue :
Total of all billing done during one financial year for all
services rendered on credit.
This ratio indicates the percentage of net debtors to
revenue. The ratio focuses on the period that it takes to
recover payment in respect of those amounts that are
deemed to be recoverable. It therefore only takes into
account the major revenue sources that give rise to
consumer and consumer debtors, excluding bad debts
provisions. It indicates the effectiveness of credit control
procedures and enables assessment of the provision for
bad debts.
Actual Billed Revenue
Actual Billed Revenue
This ratio reflects the collection period. It indicates the
number of days from billing to collection of revenue
earned on credit. It may indicates the effectiveness of
credit control procedures.
Gross Debtors : Is the balance of debtors that are
classified as current for financial statement purposes.
Only consumer debtors are taken into account for the
purpose of this ratio. Actual Billed Revenue : Total
of all billing done during one financial year for all
services rendered on credit.
Actual Billed Revenue
This indicates the collection rate as a percentage of
revenue billed on credit. It measures increases in
debtors relative to annual billed revenue..
Movement in Consumer Gross Debtors : Is the
difference of the balance of debtors at year end
minus the balance of debtors at the beginning of the
year that are classified as current for financial
statement purposes, but excluding the short term
portion of long term debtors. Actual Billed Revenue :
Total of all billing done during one financial year for all
services rendered on credit.
This ratio indicates short-term debt as a percentage of
total revenue. The accumulation of short term debt may
indicate cash flow difficulties.
Short-term debt: Is the current portion of loans and
borrowings, trade and other payables, vat payables
and short-term employee benefits. Total revenue:
Expenditure that will be credited in the income
statement for financial statement purposes in
accordance with the prescribed financial statement
formats.
RATIO MEANING OF RATIO / OBJECTIVE DEFINITIONS
Bad Debt Provision (Budget) x 100 [%]
Budgeted Billed Revenue
Trade Creditors Outstanding x 365
Credit Purchases
Expenditure Efficiency Ratios
Capital Costs x 100 [%]
Operating Expenditure
Personnel Costs x 100 [%]
Total Operating Expenditure
Personnel Costs to Total Operating Expenditure
Indicates the extent to which expenditure is applied to the
payment of personnel. Indicates the extent to which
personnel expenditure relative to total operating
expenditure is manageable and the extent to which
personnel cost increases impact on total budgeted
expenditure.
Personnel Costs : The amount expended on
employees, both part-time, full-time and section 57
contract staff and which cost relates directly to the
employment of personnel including Councillor
remuneration. Total Operating Expenditure :
Expenditure that will be credited in the income
statement for financial statement purposes in
accordance with the prescribed financial statement
formats.
Debtors Impairment
Provides an indication of the extent to which only
realistically collectable revenue is included in the budget
as revenue.
Creditors Payment Period
This indicates the average number of days for creditors to
be paid. The acceptable norm is 30 days. A period of
longer than 30 days to settle creditors is normally an
indication that the municipality is experiencing cash flow
problems.
Trade Creditors Outstanding : The amount of
creditors not being paid at year end or a specific time
during the year. Credit Purchases : The amount of
credit purchases for the financial year or a specific
period of time.
Provision for Bad Debts (Budget): Is the amount set
aside as a provision in the budget to take into
account the possible non-payment by debtors.
Budgeted Billed Revenue: Total of all budgeted
billing done during one financial year for all services
rendered on credit.
Capital Costs to Total Operating Expenditure The cost required to service external interest on
borrowings and depreciation. It is effectively the ongoing
operating cost associated with infrastructural and other
development.
Capital Costs : Constitutes the interest to service
external loans as well as the depreciation,
amortisation and impairment losses recognised as an
expense in the Statement of Financial Performance.
Operating Expenditure : Expenditure that will be
debited in the Statement of Financial Performance
but excluding losses on disposal of property, plant
and equipment and any fair value adjustments
recognised as expenses.
RATIO MEANING OF RATIO / OBJECTIVE DEFINITIONS
Personnel Costs to Total Operating Revenue
Personnel Costs x 100 [%]
Total Operating Revenue
Total Operating Expenditure to Total Operating Revenue
Total Operating Expenditure x 100[%]
Total Operating Revenue
Repairs and maintenance costs x 100 [%]
Total expenditure
Electricity Distribution Losses (Percentage)
Number of Electricity Units Purchased - Number of Electricity
Units Sold
as a percentage
lndlcaLes Lhe exLenL Lo whlch revenue ls applled Lo Lhe
paymenL of personnel. rovldes assurance LhaL proporLlon of
personnel expendlLure Lo revenue ls manageable and Lhe
lmpacL of personnel cosL lncreases on Lhe budgeL.
Personnel Costs : The amount expended on
employees, both part-time, full-time and section 57
contract staff and which cost relates directly to the
employment of personnel. It does not include
Councillor allowances. Total Operating Revenue :
Revenue that will be credited in the income statement
for financial statement purposes in accordance with
the prescribed financial statement formats.
Percentage loss of potential revenue for electricity
through electricity units purchased but not sold as a result
of losses incurred through theft (illegal connections), non
or inaccurate metering or wastages as a result of
dilapidated infrastructure.
Number of Electricity Units Purchased : Is the total
number of electricity units purchased during one
financial year as reflected on the Eskom accounts.
Number of Electricity Units Sold : Is the total number
of electricity units billed for conventional meters plus
the total number of electricity units sold for
prepayment meters during one financial year.
lL lndlcaLes Lhe exLenL of operaLlng expendlLure Lo operaLlng
revenue. 1hls raLlo provlde assurance LhaL Lhe proporLlon of
operaLlng expendlLure Lo revenue ls manageable.
Total Operating Expenditure : Expenditure that will
be debited in the income statement for financial
statement purposes in accordance with the
prescribed financial statement formats. Total
Operating Revenue : Revenue that will be credited
in the income statement for financial statement
purposes in accordance with the prescribed financial
statement formats.
Repairs and Maintenance to Total Operating Expenditure
Indicates the extent of repairs and maintenance
expenditure relative to total operating expenditure. The
ratio will indicate whether there is insufficient monies
being spent on repairs and maintenance and that
possible asset stripping is taking place.
Repairs and Maintenance : The amount spent on
repairs and maintenance as disclosed in the income
statement. Total Operating Expenditure :
Expenditure that will be debited in the income
statement for financial statement purposes in
accordance with the prescribed financial statement
formats.
RATIO MEANING OF RATIO / OBJECTIVE DEFINITIONS
Number of Kilolitres Water Purchased or Purified - Number of
Kilolitres Water Sold
as a percentage
Budget Implementation
Actual Operating Expenditure x 100 [%]
Budgeted Operating Expenditure
Actual Operating Revenue
Budgeted Operating Revenue x 100 [%]
Service charges and Property Rates Revenue Budget
Implementation Indicator
Actual Service Charges and Property Rates Revenue
Budgeted Service Charges and Property Rates Revenue
x100[%]
Operating Expenditure Budget Implementation Indicator
Operating Revenue Budget Implementation Indicator This ratio measures the extent of actual operating
revenue received in relation to budgeted operating
revenue during the financial year. Under collection
normally indicates problems relating to incorrect
budgeting or ineffective billing.
Actual Operating Revenue : Revenue that will be
credited in the income statement for financial
statement purposes in accordance with the
prescribed financial statement formats. Budgeted
Operating Revenue : Revenue budgeted that will be
credited in the income statement for financial
statement purposes in accordance with the
This ratio measures the extent of actual service charges
and property rates revenue received in relation to
budgeted service charges and property rates revenue
during the financial year. Under collection normally
indicates problems relating to incorrect budgeting or
ineffective billing.
Actual Service Charges and Property Rates
Revenue : Revenue that will be credited in the
income statement for financial statement purposes in
accordance with the prescribed financial statement
formats. Budgeted Service Charges and Property
Rates Revenue : Revenue budgeted that will be
credited in the income statement for financial
statement purposes in accordance with the
prescribed financial statement formats.
Water Distribution Losses (Percentage)
Percentage loss of potential revenue for water through
kilolitres water purchased but not sold as a result of
losses incurred through theft (illegal connections), non or
incorrect metering or wastages as a result of dilapidated
infrastructure
This ratio measures the extent to which budgeted
operational expenditure has been spent during the
financial year. Underspending may indicate that a
municipality experiences possible cash flow difficulties,
capacity challenges to undertake budgeted service
delivery or does not prepare accurate budgets.
Overspending may also indicate inaccurate budgeting or
poor financial management control in respect of budget
control.
Actual Operating Expenditure : Expenditure that
will be debited to the income statement for financial
statement purposes in accordance with the
prescribed financial statement formats. Budgeted
Operating Expenditure : Expenditure budgeted that
will be debited to the income statement for financial
statement purposes in accordance with the
prescribed financial statement formats.
Number of Kilolitres Water Purchased or Purified
: Is the total number of kilolitres water purchased
during one financial year as reflected on the service
provider accounts or kilolitres water purified as per
meter readings taken. Number of Kilolitres Water
Sold : Is the total number of kilolitres water billed for
conventional meters plus the total number of kilolitres
water sold for prepayment meters during one financial
year.
RATIO MEANING OF RATIO / OBJECTIVE DEFINITIONS
Actual Capital Expenditure x 100 [%]
Budgeted Capital Expenditure
Debt Ratios
Non Current Liabilities x 100 [%]
Actual Operating Revenue
Total Debt x 100 [%]
Total annual operating revenue
Interest coverage ratio
(Income from operating activities/interest payable) x 100 [%]
Total Debt to Annual Operating Revenue
Indicates the extent of long and short-term liabilities in
relation to revenue. The purpose of the ratio is to provide
assurance that sufficient revenue will be generated to
repay liabilities.
Total Debt : Aggregate of long-term liabilities, short-
term liabilities including bank overdrafts, hire
purchase liabilities and finance lease liabilities but
excluding trade creditors, consumer deposits,
payments in advance from consumers and
provisions. Total Annual Operating Revenue :
Revenue from all sources that will be credited to the
income statement for financial statement purposes
but excluding revenue from conditional grants, public
contributions and donations, gains on disposal of
property, plant and equipment, and any fair value
adjustments recognised as revenue.
1hls raLlo lndlcaLes Lo whaL exLend lnLeresL payable on
exLernal loans ls covered by lncome generaLed from operaLlng
acLlvlLles. 1he flnanclal lnsLlLuLlons expecL a coverage of aL
leasL 200
Income from operat|ng act|v|t|es: amounL reflecLed ln Lhe
cash from sLaLemenLs. Interest payab|e: amounL payable
Lo flnanclal lnsLlLuLlons Lo serve exLernal loans as reflecLed
ln Lhe cash flow sLaLemenL.
Non Current Liabilities to Revenue This ratio indicates debt financing relative to the operating
revenue of a municipality. It measures the percentage of
annual operating revenues that will be required to repay
debt.
Non Current Liabilities : Total non current liabilities
as reflected in the Statement of Financial Position.
Actual Operating Revenue : Revenue that will be
credited in the income statement for financial
statement purposes in accordance with the prescribe
Capital Expenditure Budget Implementation Indicator
This ratio measures the extent to which budgeted capital
expenditure have eventually been spent during the
financial year. Underspending normally is an indicator
that the municipality experiences possible cash flow
difficulties or capacity problems to implement projects.
Actual Capital Expenditure : Is the amount of
capital expenditure disclosed as additions to property,
plant and equipment in the annual financial
statements, excluding any revaluation adjustments.
Budgeted Capital Expenditure is the amount that is
budgeted to be spent on capital expenditure during
the financial year.
RATIO MEANING OF RATIO / OBJECTIVE DEFINITIONS
Total Liabilities x 100 [%]
Total Assets
Funding Ratios
Funding options employed for working capital
[(Operating surplus + Consumer deposits) / net current assets] x
100 [%]
Funding options employed for non current accounts
[Long-term liabilities + Capital Funds) / non current assets] x 100
[%]
Future Operating Ratio
Cash available for operating purposes
(Cash -[cash allocations to capital funds]+ Payment Level
[Budgeted Income]/Budgeted expenditure)
Net Asset Position
Indicates the wealth of the Municipality and the extent to
which lenders and creditors have financed the assets of
the Municipality relative to the extent to which the
Municipality has financed its assets. The smaller the
ratio, the wealthier is the Municipality.
Total Liabilities : Total Liabilities as reflected in the
Statement of Financial Position. Total Assets : Total
Assets as reflected in the Statement of Financial
Position.
Operating surplus: Is that portion of the accumulated
surplus set aside for operating purposes and accrued
through the operating account. Consumer deposits:
Is made paid by consumers as part of the working
capital. Net current assets only represent current
assets/liabilities without cash relevant transactions.
The ratio indicates whether working capital was financed
from the portion of the accumulated surplus allocated to
the operating requirements. A Municipality can not use
allocated capital funds or borrowing to finance operating
requirements.
This ratio indicates whether only capital funds were use
to finance non current assets. Municipalities do not
borrow timeously and use income creditors and funds set
aside for specific purposes to finance non current assets.
Long-term liabilities: Represents external
borrowing. Capital funds: Is the capitalization reserve
and portion of the accumulated surplus used to
finance capital projects. Non current assets
represents property, plant and equipment, intangible
assets and loans and receivables.
This ratio indicates whether enough cash is available to
finance the next years operating requirements. Cash
allocated for capital projects is deducted and the
budgeted income is reduce by the collection rate. It
indicates whether the operating requirements for the next
year can be met.
Cash allocation to capital funds: Means the cash
allocated to the housing fund, internal finance reserve
and unspent conditional grant. Payment level:
Means the payment level calculated in terms of
payment ratio. Budgeted Income: Revenue
budgeted that will be credited in the income
statement for financial statement purposes in
accordance with the prescribed financial statement
formats.

Вам также может понравиться