Profitability

Ratio 21. Operating Margin %

Operating surplus as a percentage of income from social housing lettings.
This is the net margin on turnover before any non-operating items such as exceptional expenses and financial income and expenses are taken into account. Increasing margins reflect financial efficiency and increase the borrowing capacity of housing associations. Falling margins have a direct impact on cash flow, debt-servicing and development potential. This is an important ratio to monitor as it may be the first sign of trouble.

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Ratio 22. SBIT % Total Assets

The surplus immediately before interest paid expressed as a percentage of total assets, after adding back capital grants.
This is an overall measure of profitability and the net "efficiency" in the use of assets. The ultimate comparison is with the "cash cost of capital" (Ratio 27), ie the cost of funding the assets, which must be exceeded in the long run. The mix of renting versus service activities will have an impact on this ratio so this is a critical issue to understand.

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Ratio 23. Operating Surplus % Total Operating Assets

Operating surplus (before financial income and exceptionals) expressed as a percentage of total assets, with grants added back, less all financial assets.
The aim is to determine the profitability of the core operating assets and gauge the overall efficiency with which these assets are used.

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Ratio 24. Financial Income % Financial Assets

Financial income expressed as a percentage of cash and short term investment plus investments in other undertakings.
To determine the level of profitability of financial assets in relation to the profitability of the operating assets. Susceptible to any big changes in cash deposits over the year.

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Ratio 25. Effective Interest Rate %

Gross interest paid divided by gross total debt at the year end.
Reflects the average cost of debt and the efficiency or otherwise of debt management eg. fixed versus variable. In this analysis we look at gross debt and gross interest paid. It can be distorted if debt changes dramatically during the year but RSL debt levels tend not to show big annual changes.

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Ratio 26. Scheduled Loan Repayments % Total Debt

The percentage of debt repaid in the year; the reciprocal of the average term of the debt.
The smaller the amount, the lower the re-financing risk, and the lower the cash flow required to cover total debt servicing.

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