What does it mean to be Financially Stable?

Transcription

1 What does it mean to be Financially Stable? Lynn Tincher-Ladner Director of Institutional Research and Planning Mississippi Gulf Coast Community College A presentation to the members of SACCR, 2009

2 Pressures Removed geographic boundaries Private institutions For-profit corporations Fluctuations in appropriations Limited resources to allocate

3 How institutions respond Short-term solutions budget freezes, across the board reductions, curtailing travel, cutting long-term programs

4 Financial planning Think strategically - focus on strategic balancing instead of financial balancing of the college s budget. Plans that permit growth in areas of excellence and fulfillment of mission, either in periods of financial abundance or difficulty. Think long term - financial officers need to expand their vision to the long-term rather than focusing on the current budget cycle.

5 What can we do? Facilitate expected outcomes which: Provide a clear high-level assessment of the overall financial health of the institution Based on information that is attainable Calculations are easily repeatable

6 The tools Provide resources that teach how to allocate resources based on Importance to mission Financial performance This however is another presentation.

7 The status-quo analysis Ratio Analysis Minimum Primary Reserve Ratio Viability Ratio Return on Net Assets Ratio Net Operating Revenues Ratio

8 Primary reserve ratio Answers the question: Are resources sufficient and flexible enough to support the mission? Ratio of assets to expenses Tells you how long the institution can operate without income (fraction of a year)

9 Viability ratio Answers the question: Are resources, including debt, managed strategically to advance the mission? Ratio of ratio of expendable net assets to long-term debt Tells you how much, in an instant, that the college could pay off

10 Return on net assets ratio Answers the question: Does asset Performance and management support the strategic direction? Computed as the ratio of change in net assets to total net assets Tells you how much equity the institution has

11 Net operating revenues ratio Answers the question: Do operating results indicate the institution is living with available resources? The net income ratio is computed as the ratio of operating income to revenue Tells you if the institution has a balanced budget

12 Net operating revenues ratio Answers the question: Do operating results indicate the institution is living with available resources? The net income ratio is computed as the ratio of operating income to revenue Tells you if the institution has a balanced budget

13 Composite financial index (CFI) Combines the four core ratios into one measure of institutional financial health Determine strength factors for the various ratios Weight the strengths into a single number (CFI) CFI has useful in determining overall health of the institution

14 Primary reserve strength factor Computed by: Primary Reserve Ratio 0.133

15 Viability ratio strength factor Computed by: Viability Ratio 0.417

16 Return on net assets ratio strength conversion Computed by: (Return on net assets ratio x 100)/2.0 Make certain the Return on net assets ratio is a percent before you divide by 2.0.

17 Net operating revenues ratio strength conversion Computed by (public institutions): (Net operating revenues ratio x 100)/1.3 Make certain the Net operating revenues ratio is a percent before you divide by 1.3.

18 Weights to calculating CFI Long Term Debt No Long Term Debt Primary Reserve 35% 55% Net Operating Revenues 10% 15% Return on Net Assets 20% 30% Viability 35% -

19 CFI formulas Significant Long Term Debt CFI =.35(PRSF) +.10(SF of NORSF) +.20(RNAS) +.35(VSF) No Significant Long Term Debt CFI =.55(PRSF) +.15(SF of NORSF) +.30(RNAS)

20 Interpreting the CFI -1 to 1 = Assess the institution s viability to survive 1 3 = Reengineer the institution 3 5 = Direct institutional resources to allow transformation 5-7 = Focus resources to compete in future state 7-8 = Allow experimentation with new initiatives Above 8 = Deploy resources to achieve a robust mission

21 Sources of publications Strategic Financial Analysis for Higher Education Ratio Analysis in Higher Education: Net Insights For Leaders of Public Institutions

22 Questions?