FVRA Tool Tips
It is exciting to share some tips on completing the FVRA Tool that I have learned over time. These tips will help you to get an acceptable result. I will talk about financial metrics that have also been listed on the ‘Risk Setting & Weightings’ tab of the tool.
Earnings Before Interest and Taxes (EBIT):
This ratio analyses RTO’s operations' performance without the cost of capital and income tax. The purpose is to ensure that the provider can generate enough surplus to sustain the education operations in the long run. The ratio is calculated, dividing the EBIT by the total revenue. A ratio of .10 or higher is a healthy ratio.
The ratio calculates how easily can an RTO pay interest on its debts. It is calculated by dividing the EBIT with the Interest expense. The higher the ratio, the better it is. It is even better if RTO has access to the interest-free director or related party loans.
Employee Costs (Trainer & Admin) to Total Revenue:
Employee cost is significant for an RTO and should ideally be .3 or less of the total revenue.
The debt ratio measures the extent of RTOs leverage, comparing its debt (excluding related party loans) to its assets. A ratio of .25 or lesser is a good debt ratio. Again higher equity contribution or access to the related party loans improve this ratio.
Operating Cash Flow:
This Ratio calculates the RTOs liquidity in the short term to ensure that RTO can generate enough cash to cover its payable (other than the related party loans). This is measured by dividing the cash generated from operations by the payables other than the related parties. A ratio of 2 or higher is a healthy result.
Book a meeting with me if you need help with completing the FVRA Tool or have any questions.
What is the FVRA Tool?
The FVRA Tool required by ASQA has eleven macros enabled and locked sheets to assess the financial viability of a new applicant or an existing RTO.
The tool requires you to provide information on financial history and projections for your organisation.ASQA will use the information provided in this tool to calculate ratios to determine the financial health of your RTO.
It also requires non-financial information such as projected student and staff numbers. The tool provides result in the form of traffic light signals before submission to indicate whether the base financial requirements have been satisfied, or further assessment is required.
The tool requires supporting evidence to ensure that the data is correct. The tool needs to be prepared and signed off by a qualified accountant.
Having completed many FVRA Tools for RTOs, I understand the requirements for an acceptable result. I will discuss in more details in the next video.
Book a meeting with me if you need help or have any questions.