Beyond the Operating Ratio: Using Financial Statement Analysis to Assess Fixed Capital Investments

Current practice among investors, policy makers, and industry groups for identifying the condition of physical capital in water and wastewater utilities includes the use of several key financial ratios, such as Operating Ratio, Age of Plant, Fixed Asset Turnover and Infrastructure Condition. However, these ratios are frequently misinterpreted by users of the data who are unaware of the impact of inflation upon the ratios. This report explores distortions in key financial indicators.