Approach to financeability in Australia

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Client Independent Pricing and Regulatory Tribunal (IPART)
Dates 2013
Service(s)Policy & Economics, Review & Evaluation
CEPA advised the New South Wales multi-sector regulator regarding a new approach to examining financeability in Australia. Under the proposals, the financeability test would be based on four key financial ratios - without giving a notional credit rating. This will be supplemented by analysis of the cash flow and balance sheet projections where the ratios suggest a financeability issue.

As part of the review, CEPA undertook financial modelling and scenario analysis based upon an existing model, adjusting for differences in regulatory and statutory accounting approaches. The results of our modelling and some preliminary implications were presented to IPART at a workshop held at the beginning of April. In particular, we presented findings in terms of:
  • Adjustments to the calculation of the financial ratios used in financeability testing and what the appropriate benchmarks are;
  • The period over which the financeability analysis should be undertaken; and
  • The implications for the use of financeability analysis as a cross-check on the building block analysis and WACC assumptions.