Appendix 2: Financial indicators used to monitor Crown research institutes

Crown Research Institutes: Results of the 2011/12 audits.

Figure 10 shows the financial indicators used by the Ministry of Business, Innovation and Employment to monitor Crown research institutes.

Figure 10
Financial indicators used to monitor Crown research institutes

Indicator Description Calculation
Operating margin The profitability of the company per dollar of revenue. EBITDAF** / Revenue
Profit per FTE* The ability of the company to generate a return from its staff. EBITDAF / FTEs
Quick ratio Adjusted ratio of current assets to current liabilities, adjusted for assets that cannot be liquidated quickly and liabilities that do not require cash to settle. Current assets less inventory less prepayments / Current liabilities less revenue received in advance
Interest coverage The number of times that the company can cover interest expense with profit. EBITDAF / Interest paid
Profit volatility The standard deviation of the past five year's profit, scaled by average profit. Standard deviation of EBITDAF for past five years / Average EBITDAF for the past five years
Forecasting risk The average difference between forecast return on equity and actual return on equity for the past five years. Five year average of return on equity less forecast return on equity
Adjusted return on equity Return on equity after removing the impact of fair value movements. NPAT*** excluding fair value movements (net of tax) / Average of share capital plus retained earnings
Revenue growth Measure of whether the company is growing revenue. % change in revenue
Capital renewal Measure of the level of capital investment being made by the company. Capital expenditure / Depreciation expense plus amortisation expense

* FTE = Full-time equivalent staff.

** EBITDAF = Earnings before interest, tax, depreciation, amortisation, and fair-value adjustments.

*** NPAT = Net profit after tax. Source: Ministry of Business, Innovation and Employment.

The Ministry of Business, Innovation and Employment also considers the following:

  • revenue-growth by source;
  • revenue per full-time equivalent staff member;
  • cash/net debt/gearing; and
  • interest cover.
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