Cash and Tax Ratios

Ratio 38. Cash Flow before Funding % Total Assets

Operating cash flow less interest paid less net capex, expressed as a percentage of total assets gross of grants.
Designed to quantify the seriousness of cash flow deficits and only of real concern when excessively negative. Summarises the impact of net cash flow and hence the new borrowing required on the balance sheet. Over 10% negative is a large deficit, (over 15% even more so) so financing it will need to be carefully managed.

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Ratio 39. Cash Interest % Net Operating Cash Flow

Net cash interest paid as a percentage of cash flow from operations after tax. In a sense, the first call on cash from operations is for payment of interest.
If this ratio is below 100% then internally-generated cash covers interest with some to spare, eg for capital expenditure. If above 100% the association is borrowing to pay interest, which is ultimately un-sustainable, as well as to fund new developments and refinance maturing debt.

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Ratio 40. Increase in Debt % Net Capital Expenditure

Net change in gross debt as a percentage of net capital expenditure after grants received. The 'loan-to-value’ ratio of new debt to new assets.
Investing in new asset stock for development is a crucial but cash-consuming activity. This growth in the asset base is funded partly from any surplus operating profit after debt interest.Any shortfall has to be funded through new debt.
Since this ratio measures “incremental leverage”, it should be compared with existing leverage. If the marginal is higher than the average then overall leverage will increase until some limit to borrowing is reached. If the marginal is less than the average then the average will fall, and this is more sustainable.

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Ratio 41. Net Operating Cash Flow % Net Capital Expenditure

Cash from operations after tax is expressed as a percentage of net capital expenditure after capital grants received. Any capitalised repairs and maintenance expenditure is removed from capex and deducted from operating cash flow.
Cash flow from operations is essentially used to service the debt interest and fund the growth of the asset base. Capex reflects the RSL's choice about level of development which is a key decision. The ratio shows how big operating cash flow is in relation to capex.

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Ratio 42. SHG Received % Payment on Properties

Social housing grant received as a percentage of the net payments on properties. This ratio reflects what proportion of the new investment on properties is being funded by the social housing grant; the degree to which new housing is subsidised.

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Ratio 43. Effective Tax Rate [I & E]

Tax charged as a percentage of the surplus on ordinary activities before taxation.
Tax paid on traditional housing association activities is generally insignificant so this ratio is just to “keep an eye open” for changes in the tax position through change in activities or status.

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