BC3/ Underlying Gearing Ratio FY2018
Quote:
Originally Posted by
Snoopy
The underlying debt of the company (debentures and other loan supporting borrowings removed) is the first factor in an attempt to assess the underlying shareholder owned skeleton upon which all the receivables that are loaned ultimately sit.
According to the full year (FY2017) statement of financial position the debt excluding borrowings is:
$25.479m + $9.856m = $35.335m (1)
-----
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the 'Investment Properties' (the rump of the problem property portfolio) and the unspecified 'Investments' (held on behalf of policy beneficiaries) from that total:
$4.034.671m - ($3,545.897m +$4.909m + $318.698m) = $165.167m (2)
We are then asked to remove the intangible assets from the equation as well:
$165.167m - $71.237m = $93.930m
----
Now we have the information needed to calculate the 'underlying company debt' (skeletal picture) net of all Heartland's lending activities:
$35.335m/$93.930m= 37.6% < 90%
Result: PASS TEST
The historical picture of this ratio is tabulated below.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
Target |
Underlying Gearing Ratio |
20.2% |
14.7% |
40.5% |
58.4% |
37.4% |
37.6% |
< 90% |
The underlying debt of the company (debentures and other loan supporting borrowings removed) is the first factor in an attempt to assess the underlying shareholder owned skeleton upon which all the receivables that are loaned ultimately sit.
According to the full year (FY2018) statement of financial position the debt excluding borrowings is:
$24.249m + $11.459m = $35.708m (1)
-----
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the 'Investment Properties' (the rump of the problem property portfolio) and the unspecified 'Investments' (held on behalf of policy beneficiaries) from that total:
$4,495.926m - ($3,984.941m +$9.196m + $340.546m) = $160.943m
We are then asked to remove the intangible assets from the equation as well:
$160.943m - $74.401m = $90.542m (2)
----
Now we have the information needed to calculate the 'underlying company debt' (skeletal picture) net of all Heartland's lending activities [ (1)/(2) ]:
$35.708m/$90.542m= 39.4% < 90%
Result: PASS TEST
The historical picture of this ratio is tabulated below.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
FY2018 |
Target |
Underlying Gearing Ratio |
20.2% |
14.7% |
40.5% |
58.4% |
37.4% |
37.6% |
39.4% |
< 90% |
SNOOPY
BC2/ EBIT to Interest Expense ratio FY2018
Quote:
Originally Posted by
Snoopy
Updating for the full year result FY2017:
The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs
EBIT (high estimate) = $278.279m - $71.684m= $206.595m
Interest expense is listed as $115.169m.
So (EBIT)/(Interest Expense)= ($206.595m)/($115.169m)= 1.79 > 1.20
Result: PASS TEST
The historical picture of this ratio is tabulated below. Despite the shakey start, the trend remains very pleasing.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
Target |
EBIT/ Interest Expense |
1.15 |
1.22 |
1.44 |
1.52 |
1.65 |
1.79 |
>1.2 |
This is an assessment method of looking at the underlying earning power of Heartland, compared to the interest bill they face while making their earnings. Updating for the full year result FY2018:
The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs
EBIT (high estimate) = $309.284m - $80.433m= $228.851m
Interest expense is listed as $125.483m.
So (EBIT)/(Interest Expense)= ($228.851m)/($125.483m)= 1.82 > 1.20
Result: PASS TEST
The historical picture of this ratio is tabulated below. It looks to be getting better and better.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
FY2018 |
Target |
EBIT/ Interest Expense |
1.15 |
1.22 |
1.44 |
1.52 |
1.65 |
1.79 |
1.82 |
>1.2 |
SNOOPY
BC1/ Tier 1 and Tier 2 Lending Ratios FY2018
Quote:
Originally Posted by
Snoopy
In April 2017, Heartland had a subordinated capital note issue of $A20m. Approximately 72% of the face value of the Notes will be recognised as Tier 2 Capital by our banking regulators. So we must add the 'Tier 1 capital' (being shareholder equity) to 72% of the 'Tier 2 capital' to obtain the total recognised 'tier' capital for liquidity purposes
Total Heartland Equity at balance date was |
$569.595m |
, PLUS |
Tier 2 capital as apportioned |
$14.975m |
EQUALS |
Total Tier Capital |
$584.570m |
Total Heartland liabilities at balance date were $3,465.076m
So: Equity / Total Liabilities
= $584.570m / $3,465.076m = 16.9% < 17% (*)
Result: PASS TEST
I have been a little generous in 'passing' Heartland here, because I am not convinced that using 'only' 72% of the Tier 2 capital is justified (if 100% of Tier 2 capital was used the 17% pass figure would be achieved). I have also included 'intangible assets' as equity. This is because a financial institution is 'punished' for spending on having up to date computer software (software is an intangible asset), when I see up to date software as a really good idea in keeping track of troublesome loans. Nevertheless, whether you agree with my reasoning or not, no one can dispute that Heartland was in a better loan security position at EOFY2017, than at the end of the previous two financial years.
{Note that I have changed my equity target for Heartland to the 17% equity (down from my 20% target) that Heartland had when Governor Wheeler originally approved Heartland as a bank. I had previously used 20% as the figure appropriate for a more marginal finance company without a strong history.}
The historical picture of this ratio is tabulated below.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
Target |
Total Tier Capital/ Loan Book |
19.3% |
17.7% |
17.6% |
16.6% |
16.4% |
16.9% |
>17% |
This is an assessment of Heartland's total liabilities/borrowings (including the accumulated funds looked after for Mum and Dad's known as term deposits) in relation to Heartland's own underlying assets.
In April 2017, Heartland had a subordinated capital note issue of $A20m. Approximately 72% of the face value of the Notes will be recognised as Tier 2 Capital by our banking regulators. So we must add the 'Tier 1 capital' (being shareholder equity) to 72% of the 'Tier 2 capital' to obtain the total recognised 'tier' capital for liquidity purposes
Total Heartland Equity at balance date was |
$664.160m |
, PLUS |
Tier 2 capital as apportioned (NZD1 = AUD0.9138) |
$15.758m |
EQUALS |
Total Tier Capital |
$679.918m |
Total Heartland liabilities at balance date were $3,831.766m
So: Equity / Total Liabilities
= $679.918m / $3,831.766m = 17.7% > 17%
Result: PASS TEST
I have been a little generous compared to what the reserve bank might do, in including 'intangible assets' as 'underlying equity'. The Reserve bank effectively punishes a financial institution for spending on having up to date computer software (software is an intangible asset). Yet I see up to date software as a really good idea in keeping track of troublesome loans. Nevertheless, whether you agree with my reasoning or not, no one can dispute that Heartland was in a better loan security position at EOFY2018, than at the end of the previous three financial years.
{Note that I have changed my equity target for Heartland to the 17% equity (down from my 20% target) that Heartland had when former Reserve Bank Governor Wheeler originally approved Heartland as a bank. I had previously used 20% as the figure appropriate for a more marginal finance company without a strong history.}
The historical picture of this ratio is tabulated below.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
FY2018 |
Target |
Total Tier Capital/ Loan Book |
19.3% |
17.7% |
17.6% |
16.6% |
16.4% |
16.9% |
17.7% |
>17% |
SNOOPY