Assessing Financial Condition

Transcription

1 Assessing Financial Condition Glenn Barnes Environmental Finance Center The University of North Carolina at Chapel Hill

2 Session Objectives Understanding where your water system is right now financially Learning some standard measures that funders will be concerned with

3 Can You Sleep at Night? Is your system self sufficient? Are you able to cover your debt service after paying for your day to day operations? If your customers stop paying their bills, how long can you maintain operations? Can your system meet its short term obligations? How much of your utility s expected life has already run out (and how much is left)? Operating Ratio Debt Service Coverage Ratio Days Cash on Hand Current Ratio Asset Depreciation

4 Whiteboard Video: Financial Benchmarking

5 A Tale of Two Systems That Look Similar On Paper... Bavaria and Mayberry Two average small town community water systems from the same state Note: Actual numbers from actual towns

6 They Serve Similar Populations Service Population Service Connections

7 They Have Similar Demographics MHI Percent Poverty

8 ...Though Vastly Different in Financial Indicators (and In Actual Appearance) Mayberry Bavaria

9 Quick Overview of Financial Statements

10 Statement of Net Position The assets and liabilities of the water system on the day the financial statements were prepared

11 Statement of Revenues, Expenses & Changes in Net Position Annual operating and non-operating revenues and expenses for the water system Also transfers to and from the general fund

12 Statement of Cash Flows Money in and money out of the water system

13 Notes to Financial Statements Explanations, where needed, to the financial statements

14 Operating Ratio = Operating Revenues Operating Expenses Please calculate two numbers one including depreciation, and one excluding depreciation

15 Operating Ratio Including Depreciation

16 Operating Ratio Mayberry Including Depreciation $444,231 $511,

17 Operating Ratio Excluding Depreciation

18 Operating Ratio Mayberry Excluding Depreciation $444,231 $368,

19 Debt Service Coverage Ratio = Operating Revenues Operating Expenditures (excludes depreciation) Principal + Interest Payments on Long Term Debt

20 Debt Service Coverage Ratio

21 Debt Service Coverage Ratio Mayberry $444,231 $368,985 $84,

22 Days of Cash on Hand Unrestricted cash and cash equivalents = (Operating Expenses Depreciation) / 365

23 Days of Cash on Hand

24 Days of Cash on Hand Mayberry $107,706 $368,

25 Current Ratio = Unrestricted cash and cash equivalents + Receivables, net Current Liabilities

26 Current Ratio Mayberry $107,706 $41,870 $108,

27 Now You Calculate For Bavaria

28 Operating Ratio Bavaria Including Depreciation $709,972 $671,

29 Operating Ratio Including Depreciation

30 Operating Ratio Bavaria Excluding Depreciation $709,972 $459,

31 Operating Ratio Excluding Depreciation

32 Debt Service Coverage Ratio Bavaria $709,972 $459,082 $190,

33 Debt Service Coverage Ratio

34 Days of Cash on Hand Bavaria $568,061 $459,

35 Days of Cash on Hand

36 Current Ratio Bavaria $568,061 $66,346 $898,

37 Current Ratio

38 What Happened to Bavaria? Or Why the Notes to Financial Statements are Crucial

39 Bavaria corrected $1,028,066 $66,346 $898,

40 Current Ratio Bavaria Corrected for Missing Grant Funds

41 One More to Mention: Asset Depreciation* Benchmark? Don t get close to 1.0 *Caveat This indicator is only as good as your depreciation schedule and even then historic pricing is likely to distort the results.

42 Why Care About This? Funders and ratings agencies care about this As you think about the future needs of your system, you have to know where you are starting from

43 al-health-checkup-water-utilities Set targets, enter five years of data, and see your system s financial health trends over time

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