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Penrith City Council Financial Analysis
Penrith City Council Financial Analysis
Evaluation of Financial Performance of Penrith City Council for FY 2015-16
Sandu Samaditha
Assessment Task 1:
Task1:
1. Free Cash Flow (FCF) in 2015-2016
    Calculation of Free Cash Flow of Penrith City
    
    2015
    2016
    Net Cash provided (or used in) Operating Activities
    44089
    47349
    Less: Purchase of Infrastructure, Property, Plant & Equipment
    24453
    34680
    Free Cash Flow for Penrith City
    19636
    12669
The free cash flow for Penrith City in 2016 has decreased in 2015.
2. Operating cash flow trends over the last five years
    Operating Cash Flow Trend of Penrith City over the last 5 years
    Particulars
    2015
    2016
    2017
    2018
    2019
    Cash Flows from Operations
    44089
    47349
    52291
    60929
    61049
The cash flow from operations for 2015-19 has grown from 2015 till 2019.
3. Investing cash flow trends over the last five years
    Cash Flow from Investing Activities over the last 5 Years
    Particulars
    2015
    2016
    2017
    2018
    2019
    Cash Flow from Investing Activities
    -36802
    -74907
    -42545
    -69734
    -54918
The cash flow from investing activities is negative as Penrith City has made considerable amount of investment in buying of assets and investments from 2015 till 2019.
4. Total Income trends from Continuing Operations
    Total Income Trends from Continuing Operations
    Particulars
    2015
    2016
    2017
    2018
    2019
    Total Income from Continuing Operations
    245232
    269417
    259176
    273547
    294926
The Income trend of Penrith City Council looks increasing trend from 2019 onwards till 2019.
5. Net operating profit trends
    Net Operating Profit Trends
    Particulars
    2015
    2016
    2017
    2018
    2019
    Net Operating Profits
    61413
    69379
    52062
    67478
    61466
Task2:
1. Current ratio
    Calculation of Current Ratio and Debt Equity Ratio
     
    2015
    2016
    2017
    2018
    2019
    Current Assets
    85409
    100590
    125243
    150154
    177668
    Current Liabilities
    56020
    60500
    63806
    62893
    64058
    Current Ratio
    1.52
    1.66
    1.96
    2.39
    2.77
The current ratio of Penrith City is increasing from 2015 onwards. It seems that the current assets are increasing more than current liabilities annually. This is a healthy indication for the council.
2. Debt/equity ratio
    Calculation of Current Ratio and Debt Equity Ratio
    Current Liability:
     
     
     
     
     
    Borrowings
    11066
    11293
    11758
    11050
    10211
    Non Current Liability:
     
     
     
     
     
    Borrowings
    56722
    53101
    42630
    39265
    34207
    Shareholders' Equity
    2876997
    3499855
    1804382
    1996327
    2057722
    Debt Equity Ratio
    0.02
    0.02
    0.03
    0.03
    0.02
The Debt-Equity Ratio of Penrith City Council is in decreasing trend which indicates the council’s debt is decreasing and are not anticipating any more debts for funding its activities. This is a healthy indication for the council.
3. Return on Investment over five years using the cash flow method
    Return on Investment over 5 Years using Cash Flow Method
     
    2015
    2016
    2017
    2018
    2019
    Cash Flow from Operating Activities
    44089
    47349
    52291
    60929
    61049
    Total Assets
    3614197
    2990380
    1915575
    2103230
    2164312
    Current Liabilities
    56020
    60500
    63806
    62893
    64058
    Capital Employed
    3558177
    2929880
    1851769
    2040337
    2100254
     
     
     
     
     
     
    Cash Flow Return on Investment (CFROI)
    1.2%
    1.6%
    2.8%
    3.0%
    2.9%
The Cash Flow Return on Investment is increasing annually from 2015 onwards. But, in 2019 it fell slightly compared to 2018 figures.
4. Gross profit margin
    Calculation of Gross Profit Margin
     
    2015
    2016
    2017
    2018
    2019
    Rates and Annual Charges
    119741
    125319
    134188
    143674
    156486
    User Charges & Fees
    35911
    38958
    40834
    42061
    41498
    Grants and Contribution provided for Operating Purposes
    30268
    28470
    37233
    24975
    34924
    Total Revenue
    185920
    192747
    212255
    210710
    232908
     
     
     
     
     
     
    Material and Contracts
    54595
    61650
    64299
    61261
    76908
    Employee Benefits & On-Costs
    83430
    89378
    89267
    93177
    101258
    Total Cost of Sales
    138025
    151028
    153566
    154438
    178166
    Gross Profit
    47895
    41719
    58689
    56272
    54742
     
     
     
     
     
     
    Gross Profit Margin
    26%
    22%
    28%
    27%
    24%
The gross profit margin of Penrith City has fell in 2019 compared to 2015. It may be due to rising operational costs of the council. We can also observe in 2017 and 2018 there has been considerable increase in gross profits of the council compared to the figures of 2015.
5. Breakeven revenues
    Calculation of Breakeven Revenues
    Fixed Costs:
    2019
    Depreciation & Amortization
    27720
    Employee Benefits and On-Costs
    101258
    Borrowing Costs
    1798
     
    130776
     
     
    Variable Costs:
    2019
    Materials and contracts
    76908
    Other expenses
    22455
    Net Losses for disposal of assets
    1786
    Fair value decrement on investment properties
    1535
     
    102684
     
     
    Variable Cost Per Unit
    1.45
     
     
    Revenue
    2019
    Total Income from Continuing Operations
    294926
    Total Number of Homes in Penrith City Council in 2018-19
    71036
    Income per homes ($'000)
    4.15
     
     
    Break-Even Point (in units)
    48323
    Break-Even Point (in sales values)
    200629
Assessment Task 2:
1. Develop short term and long term objectives for the council
The short term objectives of the council are as follows:
A. Development of the playgrounds and the major parks.
B. Develop a plan where the housing facilities are accessible and compliant to provide lodgings for people of all ages. Also, they will accommodate people with different and normal abilities.
C. Construct and setup a new P-12 state school in the Penrith City Council for the benefit of the children’s education.
D. Construction of two new leisure spending facilities with various amenities.
E. Construction and operation of the main road within the next three years.
The Long term objectives of the Penrith city council will be as follows:
A. Introduction of new fees structure for maintaining natural band in the council.
B. To protect the future of the commercial and retail functions and to enhance the long life of the council the residential land which is situated within the commercial stage of the strategic center must be used prudently and with restrictions. This is due to the anticipated growth in the population forcing new housing development in the Penrith City Council.
2. Conduct cost-benefit analyses for two of the major investments, P-12 school and recreational facilities
The cost benefit ratio is = Benefit ÷ Costs. It can be depicted as follows.
    Cost-Benefit Analysis
    Particulars
    P-12 Public School
    Recreational Facilities
    Total Costs
    24.60
    54.4
    Total Benefits
    18.85
    1.39
    Cost Benefit Ratio
    0.77
    0.03
** Calculation of Cost Benefit Analysis is done in Excel sheet Assessment_2 Tab
The Cost benefit analysis monetary performance indicator is based on predetermined sets of rules and objectives. It is used to calculate the positive benefits and the negative costs and provides monetary values. These values are discounted based on the prevailing hurdle rate then added to determine the net benefits of the project. The indicator used to measure the overall performance of the project is Economic value which is expressed in monetary terms. To determine the competitors and compare the alternatives among various competitors the indicator economic rate of return is considered. There are two major investment conducted by the Penrith City Council with $24.6 million investment made in P-12 public school where the benefits will be less than a leisure school. Hence, the benefits have been estimated at $18.85 million return. On the other hand, for set up of the recreational facility the investment to be made is $54.4 million and the benefits will also be very less than owned recreational facilities. Hence, the benefits have been estimated at $1.39 million. This is because the recreational facilities will be owned by the Penrith City Council and will generate very few earnings from the local community. Hence, the cost benefit ratio of the P-12 public school is estimated at 0.77 while for the recreational facilities 0.03.
3. Calculate a breakeven analysis for 2x recreational facilities with an assumption of percentage of population accessing the services (swimming and indoor sports) and an average fee per family
    Break Even Analysis of 2X Recreational facility
    Particulars
    Recreational Facilities (In $'000)
    Selling Price
    10.44
    Variable Costs
    9.18
    Contribution
    1.26
    Fixed Costs
    54.4
    Break Even Revenues
    43.17
** Calculation of Break Even Analysis is done in Excel sheet Assessment_2 Tab
    Facilities
    Workspace
    Number of members
    Fees per family (in $)
    Amount (in $'000)
    Swimming
    5000 square feet
    58725
    80
    4.698
    Indoor
    15000 square feet
    38280
    150
    5.742
    Total Revenue from the 2X recreational facilities
    10.44
** Calculation of Break Even Analysis is done in Excel sheet Assessment_2 Tab
The Breakeven revenue from the x recreational facilities in the Penrith City Council is estimated at $43.17 million.
4. Identify new resource requirements (e.g. new staff, equipment, vehicles, workspaces etc.) based on perceived activities
    New Resources fulfilment for the above facilities
    Requirements
    P-12 Public School
    
    New Staffs
    80
    Equipments
    10
    Vehicles
    40
    Workspaces
    8000 square feet area of land
    Playground and Parks renovation
    
    New Staffs
    3700
    Equipments
    50
    Vehicles
    80
    Workspaces
    37 playground renovation
    Maintenance of nature strips
    
    New Staffs
    1353
    Equipments
    100
    Vehicles
    50
    Workspaces
    404 square km
    Major road works
    
    New Staffs
    108
    Equipments
    200
    Vehicles
    150
    Workspaces
    1076 km of roads
    2X Recreational facilities
    
    New Staffs
    400
    Equipments
    100
    Vehicles
    20
    Workspaces
    20000 square feet of area each
** Calculation of resource requirement in Penrith city council is done in Excel sheet Assessment_2 Tab
The various equipments needed for construction of school, renovation of parks, construction of recreational facilities and to develop the major roads are cranes, excavators, heavy trucks, bulldozers, dump trucks, skid steer and backhoe loaders. For maintenance of nature strips lawnmowers, digging tools, watering equipments, planting tools and flower and hedge shears, axes and scythes are required.
5. Calculate revenue estimates using fictitious data of population and users of new facilities and analyse the same
    Revenue estimates based on the population of Penrith City Council
    Years
    Population
    Revenue (in $'000)
    2016
    67640
    164277
    2017
    68316
    175022
    2018
    69341
    185735
    2019
    71036
    197984
    2020
    73167
    208424
** Calculation of revenue estimates is done in Excel sheet Assessment_2 Tab
Based on the funds generated from the members of 2X recreational facilities the 2020 revenue has been estimated at $202424 million for Penrith City Council. This is the revenue generated by the council only from Rates and Annual Charges and User Charges and fees. The population growth has been estimated as per the 2019 figures of 71036 at 3% growth in the number of houses in Penrith City Council in 2020 at 73167 houses.
6. Develop a policy document for periodic monitoring and transparency of expenditure
    Policy Document – Expenditure, Penrith City Council
Purpose: To ensure that the expenditure is conducted transparently and monitored on periodic intervals.
Policy Statement: The expenditure is consistent and is approved prudently. Before the expenditure is sanctioned it is the duty of the concerned Penrith City Council to ensure that it is identified, assessed, reviewed and recorded across all the department of the council.
Expenditure is done is the form of money for the various developmental and construction of parks, recreational facilities, nature strips, P-12 public schools, major roads. All these expenditure are of capital in nature and for operational and long term purposes. All the expenditure must be recognised, managed and reported in accordance with the Australian Accounting Standards, the legislation and the Penrith City Council governing body.
Internal control policy has been implemented and directs to manage the risks associated with expenditure. This includes misappropriation of funds and frauds.
Principles: The principle of Accountability, Performance, Effectiveness and Sustainability is followed in the policy documentation of expenditure of Penrith City Council.

7. Calculate ROI on P-12 school and recreational facilities and analyse the same
    Return on Investment calculation of P-12 School and 2X Recreational facilities
    Particulars
    Cost of Investment
    Earnings
    ROI
    P-12 Public School
    $24.60
    $16.00
    65.0%
    2X Recreational Facilities
    $54.40
    $10.44
    19.2%
** Calculation of ROI is done in Excel sheet Assessment_2 Tab
8. Plan and articulate how the council will raise the funds necessary for new investments and suggest financial options
The council will raise the funds for the P-12 public school and 2X recreational facilities through the following ways:
1. P-12 Public school: The funding will be done by both Federal and State government. 30% funding will be done by Government of Australia and the rest 70% will be done by the New South Wales Department of Education in collaboration with the government of New South...