Review of the Registered Clubs Industry in NSW - Clubs NSW

6 Strengthening the financial viability of the registered
clubs industry
Table 6.3 Measures of financial viability for registered clubs
Measure
Earnings before interest, income tax,
depreciation, amortisation, rent and donations
as a proportion of revenue (EBITDARD%) a
Working capital surplus (or deficiency)
Operating cash flows/working capital deficiency
Operating cash flows/borrowings
Capital expenditure/operating cash flows
Purpose
Provides a consistent and comparable measure
of the recurring cash trading surpluses before
non-cash items and financial commitments.
Measures the excess or deficiency of current
assets over current liabilities. Provides an
indication of the club’s solvency and short–term
viability.
Measures the club’s prima facie ability to fund
any working capital deficiency through
operating cash flows.
Measures the prima facie time period that it
would take the club to repay total borrowings
through operating cash flows.
Measures the club’s level of capital expenditure
as a proportion of operating cash flows.
a The standard accounting EBITDA measure is extended to exclude rent and donations paid by clubs to provide a more
accurate comparison of financial performance between clubs. Rent is excluded to remove the impact of decisions to
lease/rent assets as opposed to purchasing and depreciating assets. Donations are excluded to remove the differences
between those clubs not within the CDSE Scheme, those paying the minimum under the CDSE Scheme and those
paying amounts over and above their CDSE obligations.
None of these measures on its own will provide a definitive indication of a club’s
financial viability – they need to be considered together to provide a complete
picture. Nevertheless, IPART considers it useful for clubs to be able to use one
measure as an initial indicator of financial viability. In IPART’s view, the most useful
measure for this is Earnings Before Interest Tax, Depreciation, Amortisation, Rent
and Donations as a percentage of revenue (EBITDARD%). EBITDARD% represents
the net operating cash surplus of a club that is available to service external debt (loan
commitments) and re-invest in the club. If EBITDARD% is low and/or declining, it
can indicate that a club is experiencing financial distress. The use of the level of
EBITDARD% as an initial indicator (but not a definitive measure) of possible
financial distress is discussed in greater detail in Chapter 7.
Second, IPART developed a series of positive and negative indicators of financial
viability, based on the measures listed on Table 6.3. These indicators (shown in Table
6.4) provide an insight into the financial strength and long-term viability of a club.
For example, growing membership numbers is likely to indicate higher levels of
revenue and increasing EBITDARD%. Similarly, an increase in trade creditor days is
likely to indicate a higher working capital surplus.
92 IPART Review of the Registered Clubs Industry in NSW