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Financial Ratios February 2018

City of Joondalup

APPENDIX 6ATTACHMENT 1

City of Joondalup - Financial Ratios - February 2018 Moore Stephens (WA) Pty Ltd | 1

Contents 1.0 Overview .......................................................................................................................................................................................................................................... 3 2.0 City of Joondalup Ratios Trends ...................................................................................................................................................................................................... 4 3.0 Regional Comparison ....................................................................................................................................................................................................................... 5

3.1 Current Ratio ............................................................................................................................................................................................................................. 5 3.2 Debt Service Cover Ratio ........................................................................................................................................................................................................... 6 3.3 Operating Surplus Ratio ............................................................................................................................................................................................................. 7 3.4 Own Source Revenue Coverage Ratio ....................................................................................................................................................................................... 8 3.5 Asset Sustainability Ratio .......................................................................................................................................................................................................... 9 3.6 Asset Consumption Ratio ........................................................................................................................................................................................................ 10 3.7 Asset Renewal Funding Ratio .................................................................................................................................................................................................. 11

4.0 Selected Local Governments ......................................................................................................................................................................................................... 12 4.1 Current Ratio ........................................................................................................................................................................................................................... 12 4.2 Debt Service Coverage Ratio ................................................................................................................................................................................................... 13 4.3 Operating Surplus Ratio ........................................................................................................................................................................................................... 14 4.4 Own Source Revenue Coverage Ratio ..................................................................................................................................................................................... 15 4.5 Asset Sustainability Ratio ........................................................................................................................................................................................................ 16 4.6 Asset Consumption Ratio ........................................................................................................................................................................................................ 17 4.7 Asset Renewal Funding Ratio .................................................................................................................................................................................................. 18

5.0 Normal Distribution of Financial Ratios ......................................................................................................................................................................................... 19 5.1 Current Ratio ........................................................................................................................................................................................................................... 19 5.2 Debt Service Coverage Ratio ................................................................................................................................................................................................... 19 5.3 Operating Surplus Ratio ........................................................................................................................................................................................................... 19 5.4 Own Source Revenue Coverage Ratio ..................................................................................................................................................................................... 19 5.5 Asset Sustainability Ratio ........................................................................................................................................................................................................ 20 5.6 Asset Consumption Ratio ........................................................................................................................................................................................................ 20 5.7 Asset Renewal Ratio ................................................................................................................................................................................................................ 20

6.0 Budgeted Ratios............................................................................................................................................................................................................................. 21 6.1 Current Ratio ........................................................................................................................................................................................................................... 22 6.2 Debt Service Coverage Ratio ................................................................................................................................................................................................... 22


6.3 Operating Surplus Ratio ........................................................................................................................................................................................................... 22 6.4 Own Source Revenue Coverage Ratio ..................................................................................................................................................................................... 22

7.0 Other Matters ................................................................................................................................................................................................................................ 23 Appendix A – Ratio Definitions ................................................................................................................................................................................................................. 24 Appendix B – Data Exclusions ................................................................................................................................................................................................................... 25


1.0 Overview

The following information has been compiled from data collected by Moore Stephens from the Annual Financial Reports of Western Australian Local Governments for the following six financial years: 2011/12 (2012), 2012/13 (2013), 2013/14 (2014), 2014/15 (2015), 2015/16 (2016) and 2016/17 (2017). At the date of this report, data relating to one local government in respect of 2016 year and sixteen local governments in respect of 2017 year was not yet available. This fact needs to be taken into consideration when analysing comparisons in relation to 2017.

The following colour scheme has been used to denote the achievement (or otherwise) of the various standards as established by the guidelines set out by the Department of Local Government and Communities in their Operational Guideline Number 18.

Ratio below standard; Ratio within a basic standard or meets standard; Ratio meets an intermediate standard or ratio improving; and Ratio above Standard or meets an advanced standard

Ratio definitions with a short summary of the ratio indicator may be found at Appendix A.

A list of the local governments where data was not able to be collected at the time of preparing this document can be found at Appendix B.

If this data was available, it may impact a normal distribution in relation to each ratio.

A copy of the Short Guide to Financial Ratios prepared by Moore Stephens (WA) Pty Ltd is available to provide background on the calculation and interpretation of the statutory financial ratios.

Please note the ratios used in this report are the required statutory ratios as disclosed in the annual financial report. If adjusted ratios have been calculated due to one off” items, these need to be taken into account when considering this report as they may represent a more relevant number for comparison purposes.


2.0 City of Joondalup Ratios Trends

The statutory ratios for the City of Joondalup (extracted from the relevant annual financial reports) are presented in the chart below.

1.19

0.97 0.99 1.05 1.040.9

0.95 0.93 0.95 0.97 0.980.92

-0.005 -0.04

-0.04

0.01

-0.01

-0.05-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2012 2013 2014 2015 2016 2017

Financial Ratios

Current ratio Own Source Revenue Coverage Ratio Operating Surplus Ratio

10.05 9.81 10.84

17.23

11.93

8.72

6

8

10

12

14

16

18

2012 2013 2014 2015 2016 2017

Debt Service Coverage Ratio

0.69

0.40.48

0.460.650.58

0.67

0.64 0.64 0.620.83

0.58

0.540.62

0

0.2

0.4

0.6

0.8

1

2013 2014 2015 2016 2017

Asset Ratios

Asset Sustainability Ratio Asset Consumption Ratio Asset Renewal Funding Ratio


3.0 Regional Comparison

On the following pages is a comparison of the City of Joondalup’s seven mandatory financial ratios against those of other Metropolitan local governments.

3.1 Current Ratio

0

1

2

3

4

5

Armadale Bassendean Bayswater Belmont Cambridge Canning Claremont Cockburn Cottesloe EastFremantle

Fremantle Gosnells Joondalup Kalamunda Kwinana

-2

-1

0

1

2

3

4

5

Melville Mosman Park Mundaring Nedlands PeppermintGrove

Perth Rockingham South Perth Stirling Subiaco Swan Victoria Park Vincent Wanneroo

Below Standard Advanced Standard 2012 2013 2014 2015 2016 2017 2017 Regional Average 2017 State Average

3.0 Regional Comparison (Continued)


3.2 Debt Service Cover Ratio

The table below details the local governments with a Debt Service Cover Ratio outside the scale of the chart above.

-505

10152025303540



-505

10152025303540



Below Standard Basic Standard Advanced Standard 2012 2013 20142015 2016 2017 2017 State Average 2017 Regional Average

2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Bayswater 157.08 650.25 213.84 203.61 148.28 1,003.11 Melville 44.24 44.22 76.16 66.05 73.07 Canning 122.77 Subiaco 90.05 Gosnells 289.12



3.3 Operating Surplus Ratio

The table below details the local governments with an Operating Surplus Ratio outside the scale of the chart above.

-20%

-10%

0%

10%

20%

30%

40%

50%



-20%

-10%

0%

10%

20%

30%

40%

50%




2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Peppermint Grove -100% Subiaco 185% -21% Rockingham -25% -36% Victria Park 95%



3.4 Own Source Revenue Coverage Ratio

0

0.5

1

1.5

2



0

0.5

1

1.5

2



Below Standard Basic Standard Intermediate Advanced Standard 2012 20132014 2015 2016 2017 2017 State Average 2017 Regional Average



3.5 Asset Sustainability Ratio

The table below details the local governments with an Asset Sustainability Ratio outside the scale of the chart above.

0

0.5

1

1.5

2



0

0.5

1

1.5

2




2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Cambridge 4.34 3.71 Mosman Park 2.12 Claremont 6.49 4.92 Stirling 2.09 2.73 2.52 3.50 East Fremantle 2.67 3.35 Subiaco 2.14 2.16



3.6 Asset Consumption Ratio

This ratio was not required to be calculated for 2012.

0

0.2

0.4

0.6

0.8

1

1.2



0

0.2

0.4

0.6

0.8

1

1.2



Below Standard Basic Standard Intermediate Advanced Standard 2012 20132014 2015 2016 2017 2017 State Average 2017 Regional Average



3.7 Asset Renewal Funding Ratio


The table below details the local governments with an Asset Renewal Funding Ratio outside the scale of the chart above.

0

0.5

1

1.5

Armadale Bassendean Bayswater Belmont Cambridge Canning Claremont Cockburn Cottesloe East Fremantle Fremantle Gosnells Joondalup Kalamunda Kwinana

0

0.5

1

1.5



Below Standard Basic Standard Advanced Standard 2012 2013 2014

2015 2016 2017 2017 State Average 2017 Regional Average

2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 Armadale 1.55 Stirling 1.99 1.95 1.89 2.88 East Fremantle 2.20 1.98 Swan 1.71


4.0 Selected Local Governments

Included in this section is a comparison of the City of Joondalup’s seven regulated financial ratios against those of six selected local governments. The local governments selected for comparison were chosen by officers of the City of Joondalup.

4.1 Current Ratio

0

1

2

3

4

5

6

Gosnells Joondalup Melville Perth Stirling Swan Wanneroo

Below Standard Advanced Standard 2012 2013 2014

2015 2016 2017 2017 Regional Average 2017 State Average

4.0 Selected Local Governments (Continued)


4.2 Debt Service Coverage Ratio The City of Stirling did not have any borrowing during the comparative period

The table below details the local governments with a Debt Service Coverage Ratio outside the scale of the chart above.

-5

15

35

55

75

95

Gosnells Joondalup Melville Perth Swan Wanneroo


2012 2013 2014 2015 2016 2017 Gosnells 289.12




-20%

-10%

0%

10%

20%

30%






-0.1

0.1

0.3

0.5

0.7

0.9

1.1

1.3

1.5


Below Standard Basic Standard Intermediate Advanced Standard 2012 2013

2014 2015 2016 2017 2017 State Average 2017 Regional Average




0

0.5

1

1.5

2

2.5

3

3.5

4







0

0.2

0.4

0.6

0.8

1

1.2


Below Standard Basic Standard Intermediate Advanced Standard 2012 2013

2014 2015 2016 2017 2017 State Average 2017 Regional Average



4.7 Asset Renewal Funding Ratio


0

0.5

1

1.5

2

2.5

3




5.0 Normal Distribution of Financial Ratios This section provides a graphical representation of the City of Joondalup’s 2017 position relative to the rest of the state using normal distribution (bell) curves. The black vertical line is the City of Joondalup’s position in relation to all other local governments plotted. Please Note: Data was not available for all Local Governments at the time of preparation of this report, please refer to Section 1.0 Overview for further details.

5.1 Current Ratio

5.2 Debt Service Coverage Ratio



0

0.05

0.1

0.15

0.2

-4.7

0-4

.10

-3.5

0-2

.90

-2.3

0-1

.70

-1.1

0-0

.50

0.10

0.70

1.30

1.90

2.50

3.10

3.70

4.30

04.

900

5.50

06.

100

6.70

07.

300

7.90

08.

500

9.10

09.

700

10.3

00

Above Standard - P(x > 1) Below Standard -P(x < 1) Joondalup 0.9

0

0.001

0.002

0.003

0.004

0.005

-326

.70

-298

.54

-270

.37

-242

.21

-214

.04

-185

.88

-157

.72

-129

.55

-101

.39

-73.

22-4

5.06

-16.

9011

.27

39.4

367

.60

95.7

6012

3.92

415

2.08

818

0.25

220

8.41

623

6.58

026

4.74

429

2.90

832

1.07

234

9.23

637

7.40

0

Advanced Standard - P(x > 5) Basic - P(x < 5) Below Basic - P(x < 2) Joondalup 8.72

0

0.2

0.4

0.6

0.8

1

-1.6

0-1

.47

-1.3

4-1

.22

-1.0

9-0

.96

-0.8

3-0

.70

-0.5

8-0

.45

-0.3

2-0

.19

-0.0

60.

060.

190.

320

0.44

80.

576

0.70

40.

832

0.96

01.

088

1.21

61.

344

1.47

21.

600

Advanced - P(x > 0.15) Basic - P(x < 0.15) Below Basic - P(x < 0.01) Joondalup -0.05

0

0.5

1

1.5

2

-0.2

0-0

.13

-0.0

60.

000.

070.

140.

210.

280.

340.

410.

480.

550.

620.

680.

750.

820

0.88

80.

956

1.02

41.

092

1.16

01.

228

1.29

61.

364

1.43

21.

500

Advanced - P(x > 0.9) Intermediate -P(x < 0.9) Basic - P(x < 0.6)Below Basic - P(x < 0.4) Joondalup 0.92

5.0 Normal Distribution of Financial Ratios (Continued)




5.7 Asset Renewal Ratio

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

-1.1

0-0

.93

-0.7

6-0

.60

-0.4

3-0

.26

-0.0

90.

080.

240.

410.

580.

750.

921.

081.

251.

420

1.58

81.

756

1.92

42.

092

2.26

02.

428

2.59

62.

764

2.93

23.

100

Above Standard - P(x > 1.1) Standard Met - P(x < 1.1) Below Standard - P(x < 0.9) Joondalup 0.65

0

0.5

1

1.5

2

2.5

3

0.20

0.24

0.28

0.32

0.36

0.40

0.44

0.48

0.52

0.56

0.60

0.64

0.68

0.72

0.76

0.81

0.84

50.

886

0.92

60.

966

1.00

71.

047

1.08

71.

128

1.16

81.

208

1.24

91.

289

Above Standard - P(x > 0.9) Standard Improving - P(x < 0.9) Standard met - P(x < 0.6)Below Standard - P(x < 0.4) Joondalup 0.62

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

-0.9

0-0

.76

-0.6

2-0

.48

-0.3

4-0

.20

-0.0

60.

080.

210.

350.

490.

630.

770.

911.

051.

191.

329

1.46

91.

608

1.74

71.

887

2.02

62.

165

2.30

52.

444

2.58

32.

723

2.86

2

Above Std - P(x > 1.05) Std Improving - P(x < 1.05) Standard met - P(x < 0.95)Below Std - P(x < 0.75) Joondalup 0.62


6.0 Budgeted Ratios The following information has been compiled from data collected by Moore Stephens from the 2017/18 Annual Budgets.

Included in this section is a comparison of four financial ratios against the six selected local governments (except where noted below).

All the ratios for the City of Wanneroo and Current Ratio for the City of Swan were disclosed in the 2017/18 budgets and have been utilised within this report.

The balance of the ratios were calculated by Moore Stephens (WA) Pty Ltd utilising data collected from the Statement of Comprehensive Income, Net Current Assets and Reserve notes disclosed in the 2017/18 budgets of the respective local governments. We make no warranty as to the accuracy given the data collected is based on forecasts.

The Current Ratio has not been calculated for the City of Stirling – Net Current Assets as at 30/06/2018 were not disclosed within the 2017/18 budget.

The City of Stirling had no long-term borrowings in the 2017/18 budget and therefore the Debt Service Coverage Ratio is not applicable.

Calculation of the Asset Sustainability Ratio, Asset Consumption Ratio and Asset Renewal Ratio requires information in relation to the value of assets which are not disclosed in the 2017/18 Annual Budgets and have not been calculated.

The Budgeted Ratios are based on the 2017/18 Annual Budgets. Actual Ratios may vary from the Budgeted Ratios. This needs to be taken into account when considering this report.

6.0 Budgeted Ratios (Continued)


6.1 Current Ratio

6.2 Debt Service Coverage Ratio



0.66

0.970.86

1.18 1.16

0.54

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Perth Wanneroo Swan Melville Joondalup Gosnells

5.0011.77

3.78

69.10

6.261.89

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

Perth Wanneroo Swan Melville Joondalup Gosnells

0.02

-0.02

0.03

0.11

0.14

-0.05

0.03

-0.10

-0.05

0.00

0.05

0.10

0.15

Perth Wanneroo Stirling Swan Melville Joondalup Gosnells

1.010.93 0.94

1.041.11

0.92 0.97

0.00

0.20

0.40

0.60

0.80

1.00

1.20

Perth Wanneroo Stirling Swan Melville Joondalup Gosnells


7.0 Other Matters RELIANCE

This document has been prepared for the exclusive use of the City of Joondalup as named on the front of this document and for background information purposes only. This document is supplied in good faith and reflects the best information available to us at the time of preparation. We have not undertaken any measures to verify the accuracy or validity of the information presented. Whilst every effort has been made to ensure the accuracy of the capture of the information presented we do not warrant or provide any assurance as to the accuracy of the information. We accept no responsibility for any loss occasioned by any person acting or refraining from action as a result of reliance on the contents of this document.

COPYRIGHT

This document is the copyright of Moore Stephens (WA) Pty Ltd and should not be reproduced or distributed without our written consent (use by the City of Joondalup for internal purposes excepted).

FURTHER INFORMATION

If you have any queries or would like to discuss this report further, please contact David Tomasi – Audit and Local Government Advisory.

Phone +61 (0)8 9225 5355 Email [email protected]

DISCLAIMER

Moore Stephens, Perth, a Perth based partnership of trusts ("the firm"), carries on business separately and independently from other Moore Stephens member firms around Australia and worldwide.

Services provided under this engagement are provided by the Firm and not by any other independent Moore Stephens member firm. No other independent Moore Stephens member has any liability for services provided by other members.

Throughout this document a reference to Moore Stephens refers to Moore Stephens (WA) Pty Ltd trading as agent ABN 99 433 544 961. An independent member of Moore Stephens International Limited – member in principal cities throughout the world. The Perth Moore Stephens is not a partner or agent of any other Moore Stephens firm.

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Appendix A – Ratio Definitions Each Statutory Ratio is defined below along with a short summary of what the ratio indicates.

CURRENT RATIO

current assets minus restricted assets current liabilities minus liabilities associated with restricted assets

Indication: A measure of the Shire’s immediate liquidity and the capacity to meet short term financial obligations from unrestricted current assets.

OPERATING SURPLUS RATIO

operating revenue minus operating expense own source operating revenue

Indication: A measure of the extent to which own source revenues raised helps to cover operational needs and its contribution or otherwise to capital purposes.

OWN SOURCE REVENUE COVERAGE RATIO

own source operating revenue operating expense

Indication: A measure of the extent of the Shire’s ability to cover operating expenses from own source revenue.

DEBT SERVICE COVERAGE RATIO

annual operating surplus before interest and depreciation principal and interest

Indication: A measure of the extent of the Shire’s capacity to generate sufficient cash to cover debt payments.

ASSET CONSUMPTION RATIO

depreciated replacement cost of assets current replacement cost of depreciable assets

Indication: A measure of the aged condition of the Shire’s physical assets.

ASSET SUSTAINABILITY RATIO

capital renewal and replacement expenditure depreciation expense

Indication: A measure of the extent to which assets managed by the Shire are being renewed/replaced as they reach the end of their useful lives.

ASSET RENEWAL FUNDING RATIO

NPV of planned capital renewals over 10 years NPV of required capital expenditure over 10 years

Indication: The Shire’s financial capacity to fund asset renewal to support existing service levels. (Interpretation of this ratio is much improved if it is calculated as an average over time as this reduces distorting caused by large scale intermittent investment in major infrastructure).


Appendix B – Data Exclusions Local governments not included in our data set due to annual financial reports being unavailable at the time of producing this document:

2016

• Shire of Ngaanyatjarraku

2017

• Shire of Broomehill-Tambellup • Shire of Carnarvon • Shire of Cranbrook • Shire of Exmouth • Shire of Goomalling • Shire of Jerramungup • Shire of Kent • Shire of Kojonup • Shire of Merredin • Shire of Morawa • Shire of Ngaanyatjarraku • Shire of Peppermint Grove • Shire of Trayning • Shire of Woodanilling • Shire of Yalgoo • Shire of Yilgarn