Financial Profile 
The financial analysis in this model is based on the
"Financial profiling, measuring up" concept and ratios originally
developed by FSMD
for the Housing Corporation in 2002, supplemented by the work on multi-period
cash cover ratios in "Do you have the capacity" published by
the National Housing Federation and carried out in 2003, also by FSMD.
The full Financial Profile consists of 59 given ratios plus 6 user-defined
ratios. Explanation of all the ratios are given on the Ratio
Definitions page and an example of the Financial Profile is given
on the relevant Analysis
Screens page.
The headings under which the detailed ratios are arranged as follows;
| Size Nominal Growth Rates Rent and Cost structure Profitability Asset Utilisation and Composition Cash and Tax Ratios Balance Sheet Capacity (Cover Ratios) Balance Sheet Capacity (Debt Repayment) Balance Sheet Capacity (Gearing and Leverage) Balance Sheet Capacity (Multi-period Measures) User-defined Ratios |
4 ratios 6 ratios 10 ratios 11 ratios 6 ratios 6 ratios 3 ratios 2 ratios 8 ratios 3 ratios 6 ratios |
Size
The 4 ratios are included as reminders of the context of the association
and to help avoid invalid comparisons between associations.
Nominal
Growth Rates
Growth ratios help us to understand the financial changes in housing associations
over time. The real power of analysing growth ratios is to compare growth
rates for different items eg growth in assets versus growth in debt or
growth in surplus before interest and tax (SBIT) versus growth in interest.
Rent and
Cost Structure
A new set of ratios, on Rent and Cost Structure, has been added to the
original profile. This is for comparison of average real rents and real
costs per housing unit over time and against other associations.
Profitability
Profitability ratios assist in determining the ability to generate surplus
and the productivity and effectiveness of housing association's investment
in assets and reserves. As not-for-profit organisations housing associations
still need to generate an operating surplus to pay interest on borrowings,
plus some more to provide a margin for safety and for retention of a surplus
to support growth.
Asset Utilisation
and Composition
Effective fixed asset utilisation is a key contributor to achieving a
satisfactory level of operating profitability but it is dominated by the
rent control regime. Understanding and managing working asset utilisation
can be a key component of cash flows.
Cash and
Tax Ratios
These are designed to capture some of the key relationships between the
main components of housing associations' cash flow dynamics ie cash from
operations, cash interest payable, net capital expenditure and cash required
from funding.
Understanding borrowing capacity is central to this model, which explores the issue from four perspectives which may well be adopted by different parties eg different providers of commercial finance, the regulator, government agencies, associations themselves;
Balance
Sheet Capacity (Cover Ratios)
These include income statement and cash flow approaches to the servicing
of interest and loan repayments. A margin of cover is needed to allow
for risks which might adversely affect the operating surplus and interest
payments.
Balance
Sheet Capacity (Debt Repayments)
These ratios compare debt with two measures of the wherewithal to repay,
namely earnings before interest, tax, depreciation and amortisation (EBITDA)
and net cash flow.
Balance
Sheet Capacity (Gearing and Leverage)
This section has a mix of traditional and not so traditional measures;
from debt per unit, through debt to balance sheet asset values and debt
to estimated Existing Use Value Social Housing EUV(SH), through to debt
to cash flow net present value (NPV).
Balance Sheet
Capacity (Multi-period Measures)
These are the recently developed multi-period cash cover ratios, Loan
Life Cover Ratios - 30 years (LLCR(30)) and Housing Association Life Cover
Ratio (HALCR), quantifying the margin of cover between the net present
value of future cash flows and the amount of outstanding debt.
The relationship between the key financial profiling topics is shown diagrammatically
below;
Logic of Financial Profiling & Credit/Capacity Assessment
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