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06 What is Viability? / continuedn Interest cover (where applicable) to examine howeasily the AHB can meet interest payments on itsdebt commitments.As part of the analysis, the Regulation Office assessestrends and overall performance and compares resultswith budget or prior year projections. Forecasts (whereavailable) are analysed to ensure the AHB remainsviable into the future.6.2 Long-term viabilityThe long-term viability of asset-based organisationshinges on the balance of assets and liabilities, theexistence of realisable positive value at any point in thefuture, and the continued generation of cash surplusesover the long-term.Accordingly we monitor:n Cash from operations over the long-term as per30-year financial projectionsn The profitability of the AHB in particular looking atoperating margins and financial efficiencyn The level of debt to equity (the gearing ratio)n Sinking fund and capacity to meet futuremaintenance needs which is fundamentalto long-term viabilityn Stock condition surveys, where we consider howcurrent the survey is, the sample size used andthe underlying assumptionsIt is not possible to adequately assess any organisationpurely by financial data. While ratios can illuminate somekey financial relationships, they do have limitations - theydo not explain underlying causal factors and whether theywill continue. Therefore, we also review the AHBs businessand strategic plans, and familiarise ourselves with eachorganisations history and management structure, as wellas their perspective on their business. We also considertheir plans for growth and their understanding of the riskenvironment in which they operate. Further details areprovided in Section 10 - “Our Assessment Process”.6.3 Business Plans and 30-yearFinancial ProjectionsAll Tier 3 (large) AHBs and some Tier 2 (medium) AHBsexceeding a debt threshold 1 are required to preparea business plan (3 -5 years) with accompanying30-year financial projections consisting of incomeand expenditure account, balance sheet and cash flowwith accompanying underlying assumptions and coredata. The projections should also include adequatesinking fund provision, based on the results of stockcondition surveys.The Business Plan should provide further detailpertaining to each AHB’s Strategic Plan and shouldinclude details of its Development Plan.The 30-year financial projection will then set out theresults and consequences of the 3-5 year Business Planinto the long term. It serves to highlight and reiteratethat a decision taken today impacts into the future. Itallows AHBs to anticipate and avoid problems that maybuild into the long-term due to decisions made today. AsAHBs are custodians of long-term social housing assets,all decisions have to be made with the future in mind.The 30-year financial projections should take intoaccount current stock and current commitments,future investment requirements in existing stock, anddevelopment plans and funding plans into the future.Additionally, the underlying economic assumptionsshould be clearly set out.The Business Plan should be reviewed by the AHB wherethere are any changes to external environmental factorsthat may affect it, such as interest rate movements,inflation and any changes to the development plan andexisting stock. Please note that, although an organisationmight review its Business Plan more than once a year,it is only required to be submitted to the RegulationOffice on an annual basis.The plans should be tested by applying appropriatesensitivity analysis variables as detailed below.1. Guideline threshold: If borrowings exceed €1.5M or loan financed stock exceeds ¼ of total stock, a full business plan and accompanying30 Year Financial Projections will be required.16Housing Agency Regulation Office