Higher Learning Commission (HLC) Ratios Black Hills State University

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1 Black Hills State University (0.010) Return on Net Asset Ratio Composite Financial Indicator The primary reserve ratio measures the financial strength of the university by comparing expendable net assets, which includes those assets the university can access and spend quickly to meet debt obligations, to total expenses at the end of every fiscal year. BHSU s ratio, although below the standard of.40, is at the highest level since 2009 and equates to nearly 4 ½ months of operating capacity. The net operating revenue ratio identifies whether or not the university is living within its available resources. A positive ratio indicates the university is in good financial condition. BHSU s net operating revenue remained positive through FY11 showing a negative ratio in FY12. This occurred for multiple reasons including revenue reductions from the general fund budget cut, an FTE enrollment decline, and a reduction in net assets in the BHSU Foundation; and an increase in expenses including the 5% employee stipend, the majority of which was paid out of our own revenues, and over half a million dollar increase in depreciation due to the recent acquisitions of the Life Science Laboratory and the University Center Rapid City. The 2013 ratio is positive. The return on net assets ratio measures whether the university is financially better off than in the previous year by measuring total economic return or the level of change in total net assets. BHSU s return on net assets ratio has consistently been above the 3-4% preferred rate of return. The low of 2.3% was reflective of the decreased market values in the BHSU Foundation in FY09 due to market downturn. The FY11 ratio increased dramatically to 46.2% due to the transfer of the Life Sciences Laboratories and the University Center Rapid City to BHSU s net assets from the South Dakota Building Authority. The FY13 ratio of 4.2% is above the preferred rate of return.

2 The viability ratio measures the availability of expendable net assets to cover debt should the University be required to settle its obligations as of the date on the balance sheet. BHSU s viability ratio dropped below the 1.25 level with new debt obligation from the Life Sciences Laboratory and University Center Rapid City in FY10 and the Woodburn Renovations in FY11, but is above the 1.25 threshold currently. Composite Financial Indicator (CFI) The CFI combines the four core ratios identified above into a single score. The combination, using a prescribed weighting plan, allows a weakness or strength in one ratio to be offset by another ratio result. The BHSU CFI has consistently run just below 3.0 indicating a position of strong financial health. The FY11 ratio is higher due to the addition of the two new buildings into net assets.

3 Dakota State University (0.048) (0.048).014 (0.004) (0.011) (0.187) (0.159) Composite Financial Indicator (0.3) The primary reserve ratio was negative in both FY09 and FY10. This ratio, like the CFI ratio, was significantly influenced by the DSU Foundation. The markets have started to rebound and so too has the DSU Foundation financial position. The University has also made a concerted effort to improve this primary reserve ratio through conservative budgeting which is reflected in the positive change from FY10 through FY13. Net operating revenue ratio was negatively influenced by cuts by the legislature and market influences in FY09, resulting in a negative ratio. The limited funding along with no ARRA stabilization funding in FY12 contributed to the decrease from FY11 to FY12. There was a slight increase from FY12 to FY13 with an increase of 6.16% in operating revenues and an increase of 15.68% in investment income due to additional funds being placed as contributing fund for investment purposes. Return on net assets ratio increased through FY11 with the efforts of conservative budgeting by the University. Also in FY11 capital revenue projects contributed to a 28% increase in net assets from FY10 to FY11. FY13 only had a slight increase 1.9% in net assets with an increase of.14% in revenues and expenses and a decrease in capital assets of 83%. The viability ratio was influenced in FY09 and FY10 by the University and DSU Foundation debt along with the negative amount available for unrestricted net assets. Again, the negative ratios are affected by the DSU Foundation along with the University s low expendable net assets. The ratio has increased slightly from FY10 to FY13.

4 Composite Financial Indicator (CFI) The CFI scores lowest rating over the past five years was -.3 in FY09 and the ratings have fluctuated over the same time period. This score was significantly influenced by the Component Unit of DSU, the DSU Foundation. As a result of the downturn in the economy, the financial position of the DSU Foundation was negatively impacted and in turn, negatively impacted several of the ratios and the Total CFI score. The Science Center and other capital projects contributed to the CFI ratio increase in FY11. Slower growth has lowered the CFI levels.

5 Northern State University (0.031) (0.067).338 (0.006) (0.038) Composite Financial Indicator 5.28 (0.1) (0.2) The primary reserve ratio is a snapshot in time showing how long the organization could operate using their expendable net reserves. The ratio fell from 2011 to 2012 because of expenditures for the addition to the Barnett Center. Funds for the Barnett Center expansion will be received from private donations. The primary reserve ratio was also impacted by a reduction in the value of investments held by the NSU Foundation. In 2013, the NSU Foundation received a sizeable gift from an estate. As a result, temporarily restricted net assets increased substantially which improved the primary reserve ratio. The net operating ratio represents the operating outcome for the year. A positive number indicates an operating surplus for the year, while a negative number indicates there was an operating loss for the year. While the University experienced a slight decrease in net position in FY13, the NSU Foundation reported a significant increase in net assets mainly due to the receipt of a generous estate gift received during the year. The return on net assets ratio measures whether or not the organization is better off financially than it was the year before. As indicated by the negative ratio in 2012, the results can vary significantly from one year to the next so this information should be viewed over a period of time. Historically, NSU and the NSU Foundation have had a positive ratio indicating a small amount of growth each year. Due to positive operating outcomes and a significant increase in the Foundation s assets, the return on net assets ratio increased in The viability ratio measures the ability of the organization to settle debt with expendable net assets. This ratio falls below the desired 1:1 level mainly as a result of bonds issued by the University for renovation of residence halls and the student union. Revenues for the bond payments are collected each year from students room charges and general activity fees. The

6 revenue generates enough funds to meet the current year payment obligations but only generates a small amount of funds to place in reserve for future years. Composite Financial Indicator (CFI) The Composite Financial Index (CFI) is the measurement of the overall health of the institution based on the four core ratios. The CFI can range from -2 for institutions that may be struggling to survive to more than 9 for institutions with the strongest financial health. The CFI for 2013 showed significant improvement over previous years. This is due mainly to the increase in Foundation assets. The University will need to continue to increase revenues, decrease expenses and grow cash reserves in order to continue to improve financial stability.

7 South Dakota School of Mines and Technology Net Operating Revenues (.136) (0.081) (0.015) (0.080) Return on Net Assets (.002) (0.048) Composite Financial Indicator (.437) (0.2) The primary reserve ratio measures the financial strength of the institution by comparing expendable net assets to total yearly expenses. Expendable net assets represent those assets that can be accessed and spent quickly to satisfy obligations. The SDSM&T ratio of.147 indicates that the University and the SDSM&T Foundation could continue current operations for about 1/2 month, in the situation of an unforeseen adverse financial event. The net operating revenues ratio indicates whether total operating activities resulted in a surplus or deficit and if the institution is living within available resources. SDSM&T s negative ratio of.136 indicates an operating loss for the year. The majority of this operating loss stems from $4.4M in depreciation of fixed assets and a $1.5M net change in Foundation unrestricted assets. The return on net assets ratio determines whether the institution is financially better off than in previous years by measuring total economic return or the level of change in total assets. This ratio improved slightly compared to FY12, as a result of increased restricted net assets for the Foundation. Included in this ratio is depreciation expense of $4.4M. The viability ratio measures the availability of expendable net assets to cover debt should the institution need to settle its obligations as of the balance sheet date. Though this ratio decreased in FY13, it still indicates that SDSM&T and the Foundation combined, as of the fiscal year end, has sufficient expendable net assets to satisfy debt obligations. Composite Financial Indicator (CFI) The CFI measures the overall health of the institution based on the four core ratios. This measurement typically ranges from -1 for universities with financial struggles to scores of 9-10 for universities with the strongest financial health. This past year, SDSM&T s CFI slipped to a negative.43. The University has taken steps to increase revenues and control spending.

8 South Dakota State University Net Operating Revenues.020 (0.001) (0.052) Return on Net Assets Composite Financial Indicator The ratio increase for FY2013 reflects an increase of $11 million in unrestricted net assets for the University and an increase of $11 million in restricted net assets for the SDSU Foundation for CY2012. The increase also reflects a $13 million decrease in total expenses in SDSU Foundation for CY2012. This ratio represents a weight of 35% of the Composite Financial Indicator. The net operating revenue ratio indicates the operating outcome for the year with a positive number indicating a surplus for the year, and a negative number indicating a deficit for the year. The ratio was positive for FY2013 due to an $8 million increase in change in unrestricted net assets as well as a $13 million decrease in unrestricted revenue for the SDSU Foundation. This ratio represents a weight of 10% of the Composite Financial Indicator. The return on net assets ratio reflects the financial condition and whether the institution is financially better off than the previous year. Over the time period, the return on net assets ratio ranged from a high of in 2010 to a low of in The FY2013 increase is due to a $25 million increase in the change in net assets for the year for the SDSU Foundation. This ratio represents a weight of 20% of the Composite Financial Indicator. The viability ratio reflects the availability of expendable net assets to settle debt at the balance sheet date. The FY2013 increase in the viability ratio is a result of an increase of $27 million in expendable net assets for the year for the University and the SDSU Foundation. This ratio represents a weight of 35% of the Composite Financial Indicator. Composite Financial Indicator (CFI) The SDSU Composite Financial Indicator (CFI) score was relatively stable over the period of 2009 to The FY2013 CFI score was 2.0 which is comparable to the CFI scores from 2009 to 2011.

9 University of South Dakota/SSOM Net Operating Revenues (0.014) Return on Net Assets Composite Financial Indicator A primary reserve ratio of 40% or better is advisable to give institutions the flexibility to transform the enterprise. The University s primary reserve ratio for fiscal year 2013 is 55.2%, which indicates that the University along with the USD Foundation could continue its current operations for approximately 28 weeks. The ratio has remained fairly stable over the past three years. Net Operating Revenues Ratio Fiscal year 2013 rebounded from the negative balance created in The 2012 negative ratio was the result of unrealized endowment losses at the USD Foundation and a required recognition of a loss on disposal of two buildings (Redwood and Cypress) that were beyond reasonable repair. Fiscal year 2013 provided unrealized gains on investments for the Foundation while the University s non-operating revenues and expenses remained stable. Therefore, the return on net position for fiscal year 2013 is 9.4% as compared to 1.9% and 19.1% for fiscal years 2012 and 2011, respectively. The increase in the viability ratio is primarily due the Foundations increase in unrealized gains on endowments and increases in revenues from FY12. Composite Financial Index The CFI in fiscal year 2013 increased by 1.5 points from the prior year to 3.8. The return on net position ratio and the net operating revenue ratio both returned to improved levels after some unusual events in The return on net position ratio recovered primarily because the USD Foundation saw healthy gains on their investments after a down year in The net operating ratio improved due to an increase in General Fund Appropriations and the fact that there were no large losses recognized from the disposal of a building as in the previous year.