7.15.2.1. The indicators in the table below are suitable for assessing capital
adequacy.
| Ratios
or Other Measures |
Computation
Method |
Significance
and Notes |
| 18.
Debt Service Coverage (DSC) Ratio (Version A) |
| Free
Cash Flow [revenues – expenses +/- extraordinary
income/loss (excluding non-cash items, working capital
movements and interest charges) –net capital expenditure] |
| |
| Annual
Debt Service (b) |
|
DSC,
the primary financial covenant and monitoring tool, is an
indicator of the executing agency’s cash flow margin,
enabling it to service debt from internal sources.
(a)
Revenues may be adjusted to take into account any change in
tariffs/charges in the year of measurement.
(b) Aggregate debt repayments including principal and interest.
See section
3.6.3.3 for a legal description and section
4.4.7.6 for a discussion of applicability. |
| 19.
Debt Service Coverage Ratio (Version B: Forecast Cash Flows) |
| Estimated
Free Cash Flow [estimated revenues – estimated
expenses +/- extraordinary income/loss (excluding noncash
items, working capital movements and interest charges)
– agreed annual capital expenditure] |
| |
|
Estimated
Debt Service Requirements (Principal and Interest payments) |
|
Measures
the extent to which forecast cash flows are able to cover forecast
debt service requirements.
See section 3.6.3.3
for a legal description and section
4.4.7.6 for a discussion of applicability. |
| 20.
Debt: Equity Ratio |
|
Measures
the relationship between all borrowed funds and shareholders'
invested capital.
See section 3.6.3.4
for a legal description and section
4.4.7.7 for a discussion of applicability. |
| 20a.
Leverage Ratio |
| Total
Liabilities |
| |
| Tangible
Assets – Liabilities |
|
Standard
measure of solvency. Represents a departure from the classical
definition of financial leverage, which generally measures long-term
obligations only. However, total liabilities include payables
and other short-term funding that DMC enterprises typically
use as a substitute for long-term debt. Leverage is particularly
important for new enterprises that have no earnings record,
and for cyclical industries. It can also be used when there
is a need to cap the overall use of debt for growth in a corporate
or group loan. |
| 21.
Long-Term Debt to Total Equity Ratio |
|
Total
Long-Term Debt |
| |
| Equity |
|
A
capital adequacy measure.
Measures the relationship of long-term debt to equity. |
| 22.
Long-Term Debt to Total Capitalization |
|
Long-Term
Debt |
| |
|
Long-Term
Debt + Equity |
|
A
capital structure measure.
Measures the relationship of long-term debt to total capitalization. |
| 23.
Equity Ratio |
| Total
Stockholders' Equity |
| |
| Total
Shareholders' Equity + Total Liabilities |
|
Shows
the protection to creditors and the extent of trading on the
equity (leverage). |
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