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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