KEY FINANCIAL METRICS & DASHBOARD REPORTING FOR HIGHER EDUCATION - PDF document

1/26/2016 KEY FINANCIAL METRICS & DASHBOARD REPORTING FOR HIGHER EDUCATION INSTITUTIONS January 26, 2016 Jim Creeden Adam Smith Partner Director jcreeden@bkd.com asmith@bkd.com 1

1/26/2016 TO RECEIVE CPE CREDIT Participate in entire webinar • Answer polls when they are provided • If you are viewing this webinar in a group •  Complete group attendance form with Title & date of live webinar • Your company name • Your printed name, signature & email address •  All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar  Answer polls when they are provided If all eligibility requirements are met, each participant will be emailed their CPE certificates within • 15 business days of live webinar GOALS FOR TODAY Importance of Financial Metrics & Ratio Analysis Review & Evaluate Key Financial Metrics & Ratios Composite Financial Index (CFI) & Linkage to Strategic Planning Presenting Results in Dashboards 2

1/26/2016 FINANCIAL METRIC & RATIO ANALYSIS • Why important?  Recent economic factors & industry pressures  Transparency  Accountability • Identification of financial risks • Method of communication to stakeholders • Risk with peer comparisons  Apples vs. oranges? MOODY’S & S&P RATING CONSIDERATIONS • Four broad factors in assessing ratings  Market profile  Operating performance  Wealth & liquidity  Leverage • Self-assessment & benchmarking 3

1/26/2016 MOODY’S & S&P RATING CONSIDERATIONS • Positive indicators of self-assessment & benchmarking • Identification of key performance indicators • Monitoring of key performance indicators • Examples of leadership actions based on performance relative to key indicators • Comparison to carefully selected set of peers 4

1/26/2016 Resource Sufficiency & Liquidity Ratios RATIO/METRIC OVERALL OBJECTIVES • Primary reserve ratio • Sufficient amount of funds to meet current & future • Monthly/annual days of operating & capital cash on hand requirements • Monthly/annual liquidity • Ability to achieve & sustain • Expendable financial a level of resources resources sufficient to realize mission • Monthly/annual liquidity to • Insight about capacity to demand debt manage through stress • Operating flexibility Primary Reserve Ratio Calculation Compares expendable net assets to Private Public • total expenses Institution Institution Snapshot of financial strength & • flexibility Expendable net Expendable assets plus FASB Numerator Indicates how long institution can • Net Assets CU expendable function using expendable reserves net assets without relying on additional net assets generated by operations Assets that could be access quickly to • spend to satisfy obligations Total expenses Denominator Total Expenses plus FASB CU total expenses Helps understand affordability of • strategic plans Source: Strategic Financial Analysis in Higher Education, Seventh Edition (KPMG, Prager Sealy and Co., and Attain, 2010) 5

1/26/2016 Primary Reserve 0.80 0.70 0.70 0.70 0.65 0.60 0.56 0.50 0.40 0.30 0.20 0.10 2012 2013 2014 2015 Represents a sample of 40 Midwest based private institutions Monthly/Annual Days of Cash On Hand Measure number of days an • institution is able to operate from unrestricted liquidity within one month & one year Monthly/Annual Numerator Liquidity X 365 Measure of operating flexibility & • cushion Total expenses less: Deprecation Highly correlated with Moody’s Denominator • Other large noncash ratings expenses 6

1/26/2016 Days of Cash on Hand 70 62 61 60 64 55 50 40 30 20 10 0 2012 2013 2014 2015 Represents a sample of 40 Midwest based private institutions Monthly/Annual Liquidity Distinguishing between wealth & • liquidity Funds available within one month (one year) Takes into account donor • Consists of unrestricted operating accts or restrictions, accounting rules, Other non-endowment unrestricted funds investment strategies, etc. Assess how much liquidity to meet • Lesser of large unexpected payments, demand Funds available within one month (one year) or accelerated payments on debt in endowment or other long-term funds or Unrestricted Board Designated Endowment as presented in footnotes or self-reported (public institutions) 7

1/26/2016 Expendable Financial Resources Indicates amount of net assets • spendable in long run Total unrestricted & temporarily restricted net assets Long-term debt, less net investment in plant Source: Strategic Financial Analysis in Higher Education, Seventh Edition (KPMG, Prager Sealy and Co., and Attain, 2010) Expendable Financial Resources to Direct Debt 1.40 1.28 1.32 1.20 1.13 1.00 1.00 0.80 0.60 0.40 0.20 0.00 2012 2013 2014 2015 Represents a sample of 40 Midwest-based private institutions 8

1/26/2016 Monthly/Annual Liquidity to Demand Debt Liquidity available • to cover outstanding Monthly/Annual demand debt Numerator Liquidity Measure Demand Debt: All VRDOs Commercial Paper Put Bonds Denominator Outstanding Lines of Credit Loans or private placements with put features (Excludes regularly scheduled principal maturities) Operating Metrics RATIO/METRIC OVERALL OBJECTIVES • Sufficient amount of funds • Net operating revenues to meet current & future ratio operating & capital • Cash income ratio requirements • Net tuition dependency • Ability to achieve & sustain • Net tuition per student FTE resources ratio • Insight about capacity to • Deferred maintenance manage through stress ratio • Operating flexibility • Operating income ratio 9

1/26/2016 Net Operating Revenues Ratio Indicates whether total • Private Public unrestricted activities Institutions Institutions resulted in surplus or deficit Operating Excess Living within means? income (Loss) • (deficiency) of plus net non- unrestricted operating operating Positive & higher ratio show • Numerator revenues revenues over stronger performance as a (expenses) plus unrestricted result of year’s activities FASB CU change operating in unrestricted expenses net assets Pattern of large deficits or • Operating surpluses can be revealing revenues plus Total unrestricted non-operating Denominator operating revenues plus revenue FASB CU total unrestricted revenue Source: Strategic Financial Analysis in Higher Education, Seventh Edition (KPMG, Prager Sealy and Co., and Attain, 2010) Cash Income Ratio Private Public Good indication of • an institution’s Institutions Institutions liquidity Cash provided from operations plus cash received A higher ratio from appropriations for • Net cash provided operating purposes plus gifts provides institution Numerator by operating & grants for operating with a greater activities purposes plus FASB CU net amount of flexibility cash provided by operating in its operations activities Operating revenues plus appropriations revenues for operating purposes plus gifts Total unrestricted & grants revenues for Denominator income excluding operating purposes plus FASB gains or losses CU total unrestricted income, excluding gains & losses Source: Strategic Financial Analysis in Higher Education, Seventh Edition (KPMG, Prager Sealy and Co., and Attain, 2010) 10

1/26/2016 Operating Income Ratio Demonstrates extent to • All Institutions which current-year activities have contributed to overall operations Operating income (excludes investment Numerator income, contributions, net Measures institutional self- • assets released from sufficiency restrictions) Highlights variability of this • source of income & need to Educational & general Denominator maintain quality & market expenses demand Source: Strategic Financial Analysis in Higher Education, Seventh Edition (KPMG, Prager Sealy and Co., and Attain, 2010) Deferred Maintenance Ratio Calculation Increasing ratio is an Private Public • indicator of growing Institutions Institutions deferred maintenance & an Outstanding Outstanding aging plant Numerator maintenance maintenance requirements requirements A decline in this ratio must • be viewed in context of other issues affecting Expendable net institution, such as large Expendable net assets plus FASB Denominator investments in new assets CU expendable facilities net assets Source: Strategic Financial Analysis in Higher Education, Seventh Edition (KPMG, Prager Sealy and Co., and Attain, 2010) 11

1/26/2016 Net Tuition Dependency Ratio Dependency on tuition & fees All Institutions • Shows relative importance of • revenue stream Numerator Net Tuition An increasing trend or over • dependence isn’t desirable Total Revenue Denominator (Includes investment return) Source: Strategic Financial Analysis in Higher Education, Seventh Edition (KPMG, Prager Sealy and Co., and Attain, 2010) Net Tuition Per Student FTE Ratio Analyzed with view of • All Institutions tuition discounting & aid Increases show generating • more per student Numerator Net tuition Full-time equivalent Denominator students Source: Strategic Financial Analysis in Higher Education, Seventh Edition (KPMG, Prager Sealy and Co., and Attain, 2010) 12