report

Audit Results Report – Annual 2017-18 Financial Audits of State Government Entities

Key financial ratios of public sector entities

In this section we present selected key financial ratios and information commonly used for assessing financial performance or analysing the financial health of entities:

  • liquidity (current) ratio
  • summarised financial result for all entities
  • borrowings to assets ratio.

Liquidity (current) ratio for all entities – 4 year trend

The liquidity or current ratio is a traditional method of assessing an entity’s ability to meet its debts as and when they fall due. It is calculated by dividing current assets by current liabilities. A ratio of more than one is generally accepted to show a low risk.

Eighty-two percent of entities at 30 June 2018 had a current ratio below 1.0, a slightly higher result to the previous years.

Table 9 - Liquidty ratios of entities

Financial result for all entities – 4 year trend

A number of factors can determine whether an entity achieves a surplus financial result. However, a surplus is generally an indicator that an entity is adequately funded and/or has sound financial management including good budgeting.

Ninety entities (70%) reported a surplus for 2017-18. The following table is a summary of the financial results of entities over the past 4 years.

Table 10 - Financial results of entities

Borrowings to assets ratio

While a relatively small number of entities have a borrowings liability, their borrowings are significant in value. The borrowings to assets ratio is an indicator of the extent to which an entity’s borrowings are covered by assets.

However, caution is needed when interpreting the results as the indicator does not differentiate between current and non-current assets and borrowings. It is a high level indicator of the extent that an entity has debt obligations.

Table 11 - Borrowings to assets ratio of entities

Dividends paid by Public Corporations to General Government

Dividends paid by public corporations increased significantly, contributing $1,718 million to the General Government Sector financial results in 2017-18, compared to $837 million in 2016-17. The 2017-18 dividends represent payout and surplus levels similar to 2015-16.

These dividends provide an additional funding source for distribution to budget funded entities for the delivery of government services. Despite these benefits, sustained high dividends can impact corporations’ ability to retain enough of their surplus to meet asset maintenance and infrastructure renewal requirements.

Each corporation operates under its own enabling legislation with each having differing requirements and processes for the payment of dividends to Government. Treasury has advised that, in general terms, the dividend payout ratios are determined each year through a combination of SCIs and the annual Budget process. The dividends are generally calculated as a percentage of Net Profit After Tax[1].

The timing of dividend payments and the required approval processes are also prescribed in each corporations’ legislation. Broadly, however, the Board makes a recommendation to the Minister, who consults with the Treasurer before determining the amount of the dividend. The process of seeking the Treasurer’s concurrence includes Treasury review of the actual and budget financial statements of the corporation. Once the dividend amount has been agreed, the corporation pays the dividend to the Treasurer (the Consolidated Account), in accordance with their legislation. If the Minister directs a different dividend amount, then this direction is required to be tabled in Parliament.

The following table shows the dividends paid by the entities for the last 2 years and their trading surpluses for those 2 years.

[1] Public Corporation Dividend Payout Ratios – refer 2018-19 Economic and Fiscal Outlook paper of the State Budget.

Table 12 - Dividends paid by entities to gernal government sector

 

 

 

 

 

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