Strategic Issues Related to: University Plan, Performance, and Accountability Report. Finance Committee September 12, 2013

Transcription

1 Strategic Issues Related to: University Plan, Performance, and Accountability Report Finance Committee September 12, 2013

2 University Goal Outstanding Organization Be responsible stewards of resources, focused on service, driven by performance, and known as the best among peers. Strategic objectives Ensure the University s financial strength. Be responsible stewards of physical resources. Promote performance, process improvement, and effective practice. Foster peer-leading competitiveness, productivity, and impact. Ensure a safe and healthy environment for the University community. Focus on quality service. 2

3 Strategy: Ensure the University s Financial Strength Ratio Analysis 1. The set of financial data and related ratios provides a means to evaluate the financial strength and direction of the institution. 2. Ratios help to analyze the financial solvency and viability of the University and focus on the ability of the institution to meet current and future financial requirements. 3. Moody s Investors Services uses ratios to assist in assigning a debt rating to the University currently at Aa1, one notch below the top debt rating assigned by Moodys of Aaa. 3

4 University Ratios as of June 30: Ratio Desired Trend Total Financial Resources to Direct Debt Measures coverage of direct obligations of the University by all of its resources Expendable Financial Resources to Direct Debt Measures coverage of debt by financial resources that are ultimately expendable Actual Debt Service to Operations Measures the debt service burden on the annual operating budget Expendable Financial Resources to Operations Measures coverage of annual operating expenses by financial resources that are ultimately expendable Net Operating Margin (Net Income Ratio ) Measures the excess margin by which annual revenues cover operating expenses Return on Financial Resources Measures the net change in financial resources over the fiscal year % 2.0% 2.6% 3.0% 3.0% % (2.9%) 1.9% 3.4% 2.6% (2.5%) (18.6%) 8.4% 17.4% 3.35% 4

5 Strategy: Ensure the University s Financial Strength Composite Financial Index (CFI) Higher Learning Commission (HLC) Annual Institution Data Report Provides a more complex picture of financial health of an institution at a point in time by comparing four core ratios: Primary Reserve Ratio measure of the level of financial flexibility Net Operating Revenues Ratio measure of the operating performance Return on Net Assets Ratio measure of overall asset return and performance Viability Ratio measure of the ability to cover debt with available resources Reflects a more balanced view of the state of the institution s finances because a weakness in one measure may be offset by the strength of another Examining the trend of the CFI score over an extended period offers a more stable long-term view of an institution s financial performance 5

6 Strategy: Ensure the University s Financial Strength Composite Financial Index (CFI) CFI is calculated by: Determining the value of each ratio Converting the value to each ratio to strength factors along a common scale Multiplying the strength factors by specific weighting factors Totaling the resulting four numbers to reach the single CFI CFI scores fall along a scale of -4 to 10 CFI score of 3 is the threshold of institutional financial health Score of < 3 indicates a need for serious attention to the institution s financial condition Score of > 3 indicates positive financial health 6

7 Strategy: Ensure the University s Financial Strength Composite Financial Index (CFI) University of Minnesota Ratio 2010 CFI 2011 CFI 2012 CFI Primary Reserve Net Operating Revenue Return on Net Assets Viability TOTAL CFI SCORE * * The higher score in 2011 is due to a greater increase in net assets in 2011 as compared to 2010 or

8 Strategic Issues Related to: University Plan, Performance, and Accountability Report Finance Committee September 12, 2013